Why do I have to take out insurance when setting up contracts with clients?
Many companies come to us with a list of insurance requirements requested by their clients in order for them to get an agreement in place. Why do clients (especially enterprise clients) request this, and what sorts of insurance do they usually want?
The whole point of insurance is to reduce risk by transferring it to an insurer. When it comes to entering into contracts between parties, it makes sense that you want to safeguard your company. Your clients want a work contract with you because your service offering provides them with a benefit that they do not have. This requires trusting a third party to deliver results in 'good faith'. Insurance is a common way to reduce the risk exposure in case things go wrong and your clients suffer financially.
What are the typical insurance policy requirements and why are they there?
General Liability / Public Liability
This is the most common required policy. It protects your company in case there are claims of accidental bodily injury or property damage related to the products or services you provide to your client. If your clients are based outside of Singapore, you will need to make sure that this policy has coverage for the territory that they operate in. Worldwide cover can be arranged.
Professional Indemnity (PI)
Also known as Professional Liability or Errors & Omissions insurance, this policy protects you in case there is a failure or error in the service you provide. The policy covers the legal defence costs in case of claims. You can read more about this type of insurance in our previous blog post. Clients request for a PI policy to be in place so that they have the assurance that they can sue you and claim for damages if they suffer an economic loss as a result of your services. These policies are worldwide in nature. Premiums increase however if you need coverage extended to the US for US-based clients.
Work Injury Compensation / Employer Liability
Clients want to make sure that your employees are covered in case of any accidents, injuries, or contracted diseases as a result of working on their contracts. In Singapore this is covered by Work Injury Compensation (WIC). It is mandated by the Ministry of Manpower for employers to take this out for all employees (whether local or foreign, and whether part time of full time), who have a manual job nature or earn less than S$2,600 per month. This insurance pays for the medical fees and hospitalisation leave wages.
Some clients may also want you to take out an Employer Liability policy which covers lawsuits against employers for cases of negligence or breach of duty which result in injury to the employees. In Singapore, this can be included in the WIC policy. It is referred to as the Common Law Liability in Singapore and has a policy limit of S$10m which is more than enough of what is usually requested by clients.
It is starting to become more common for clients to request a Cyber Insurance policy, especially if your company handles personal data as part of your work engagement with them. Clients want to make sure that you have proper procedures in place to respond in case of cyber incidents and breaches. Also, having a cyber policy in place means that your client knows they can sue you in case of data breaches. Depending on your type of business, this could be the trickiest policy to take out due to the significant increase in claims. It is not impossible to get, however there are now many more hoops to jump through to get insured. Check out our previous blog post on how cyber insurance is becoming uninsurable in the near future.
Other common insurance requests
Also known as Professional Liability or Errors & Omissions insurance, this policy protects you in case there is a failure or error in the service you provide. The policy covers the legal defence costs in case of claims. You can read more about this type of insurance in our previous limits. This is because they are in more litigious environments compared to Singapore and legal fees can go verys high. We have seen requests for limits up to $10m. This is generally harder to get coverage for in Singapore as it is a small market and premiums therefore become extremely high. Insurers will request to see a copy of the contract to understand the exact insurance requirements requested, to assess the level of risk management built into the wording of the contract and to see what the value of the contract is. You may want to negotiate with your client on reducing the requested limit of insurance especially if they are asking for an exorbitant limit compared to the value of the contract.
Your clients may request to be added as an additional insured party on the insurance policy. This then covers them under the policy in case they are also named in a lawsuit as a result of the actions of your company.
Waiver of Subrogation
This is to prevent the insurer from recovering the money they paid on a claim from your client. It is sometimes requested by the client to have added to insurance policies so that they will not be held liable for damages if they are partially responsible for the loss. It is usually difficult to find an insurer who is willing to include this in their policies. So if possible, this is something you should try to negotiate out of your contract.
Have you gotten a list of insurance requirements as part of a contract, and not sure where to begin? Get in touch with us, Anapi can help navigate the details and source insurance quotes for you in Singapore.