Protect your business and personal assets when clients claim your code, advice or service caused them financial loss.
Professional indemnity insurance for software developers covers legal defence costs and compensation when clients claim your code, technical advice or service delivery caused them financial loss.
Coverage typically ranges from £500,000 to £5 million, with annual premiums from several thousand pounds for small businesses. Most enterprise clients require proof of cover before contracting.
The policy responds to claims arising from coding errors, inadequate technical advice, missed project specifications, data loss and system failures.
UK tech sector claims can be settled as low as £50,000, though claims regularly reach six figures. Coverage typically excludes deliberate acts, contractual guarantees, IP infringement (often requires separate consideration) and cyber incidents affecting your own systems.
What’s in this Article
Short answer: Professional indemnity insurance for software developers covers legal costs and compensation when clients claim your code, design decisions or technical advice caused them financial loss. Most enterprise clients and many SME contracts require it before they’ll work with you.
But here’s what developers often miss: It’s not just about client contract requirements, it’s about protecting everything you’ve built when a bug you wrote six months ago causes a client’s system to fail during their peak trading period.
If you’re building software for other businesses, writing code that handles their data or providing technical advice that shapes their IT infrastructure, you’re creating professional liability exposure every day. One architectural decision that proves unsuitable, one data migration that corrupts records or one integration that fails under load can trigger claims that exceed your annual revenue.
It’s hard to cost a professional indemnity claim in the technology sector settling for less than £50,000, though claims regularly reach six figures when they involve data loss, system downtime or regulatory breaches. Your client’s loss isn’t limited to what you charged them, it extends to consequential damages like lost revenue, recovery costs and reputational harm.
What professional indemnity actually protects software developers against
Professional indemnity covers the financial consequences when your professional work falls short of the standard your client reasonably expected.
For software developers, this means protection when:
Your code contains errors that cause client losses. A bug in your invoicing module that under-charges customers for three months, costing your client £200,000 in lost revenue. An authentication flaw that allows unauthorised access to customer accounts. A calculation error in financial reporting software that leads to regulatory fines.
Your technical advice proves inadequate. Recommending a database architecture that can’t scale to the client’s actual usage patterns, forcing a costly rebuild. Specifying security measures that prove insufficient when the client suffers a breach. Advising on technology choices that become obsolete or unsupported sooner than projected.
Your service delivery fails contractual standards. Missing critical project milestones that delay the client’s product launch. Delivering software that doesn’t meet agreed specifications, requiring expensive remediation. Failing to implement proper testing protocols that would have caught defects before deployment.
The policy covers your legal defence costs even when claims prove unfounded, plus any compensation you become legally liable to pay. This matters because defending a complex professional negligence claim typically costs £15,000 to £40,000 before you reach any settlement.
When you need professional indemnity as a software developer
The requirement typically surfaces at three distinct moments.
Client contracts trigger the immediate need. Enterprise clients routinely require professional indemnity certificates before they’ll sign, with limits typically ranging from £1 million to £5 million depending on contract value. Your professional indemnity certificate requirements need satisfying before procurement will approve the purchase order, and delays here extend your sales cycle by weeks.
Project risk determines coverage urgency. If you’re building software that handles financial transactions, stores personal data or controls operational systems, the potential claim size justifies insurance regardless of contract requirements. A payment processing error, a data breach or a system failure during critical operations each creates claim potential that could destroy an uninsured business.
Business growth makes coverage essential. As you move from small projects to larger contracts, from working alone to employing developers or from UK-only clients to international work, your exposure scales faster than your revenue. Insurance provides the financial buffer that lets you take on more ambitious work without risking everything you’ve built.
It’s not just whether you need cover, it’s whether you can afford to operate without it when a single claim could force closure.
How software developer professional indemnity differs from general business cover
General liability insurance covers physical damage and bodily injury. You need it if clients visit your office or if you visit client sites. But it doesn’t cover the financial losses your clients suffer when your professional work proves inadequate.
Professional indemnity specifically covers economic losses arising from your professional negligence, errors or omissions. It’s designed for the claim scenario where nothing physical was damaged but your client lost money because your work wasn’t good enough.
The distinction matters when filing claims. If your laptop gets stolen from a client site and contains unencrypted client data, general liability won’t respond because the loss is financial and reputational, not physical. Professional indemnity covers the consequences of that data security failure.
Many developers assume their limited company structure provides adequate protection. It doesn’t. Whilst incorporation limits personal liability for company debts, clients can still pursue claims that exceed your professional indemnity cover, and directors can face personal liability for negligent misstatements or fraudulent conduct. Insurance provides the legal defence funding and compensation payment that keeps claims from reaching your personal assets.
Decision framework: Determining your professional indemnity needs
If you’re providing software development services to other businesses → You need professional indemnity insurance. The only question is how much.
If your largest contract value is under £50,000 → Start with £500,000 cover. This satisfies most SME contract requirements whilst keeping premiums affordable for new businesses.
If you’re bidding for enterprise contracts worth £100,000+ → Secure £1 million to £2 million cover before the procurement conversation starts. Enterprise clients expect higher limits and won’t negotiate downward on insurance requirements.
If you handle sensitive data, financial transactions or critical systems → Consider £2 million to £5 million cover regardless of contract size. The consequential loss potential from data breaches, transaction errors or system failures justifies higher protection.
If you’re currently uninsured and have active clients → Purchase cover immediately with retroactive date negotiated to cover prior work where possible. Claims often surface months or years after the project completed, and insurance purchased today won’t cover work done yesterday unless specifically endorsed.
The real challenge isn’t determining if you need professional indemnity, it’s choosing limits that protect you adequately without over-insuring to the point where premiums become unaffordable. Most brokers recommend setting your limit at 2 to 3 times your largest annual contract value, then reviewing as your business scales.
What professional indemnity costs for software developers
Premiums typically range from several thousand pounds annually for small software development businesses, scaling with your revenue, cover limit and claims history. Revenue drives the baseline premium.
Your work type influences pricing. Pure software development attracts lower premiums than consulting that includes strategic IT advice. Building internal tools for single clients costs less to insure than creating software sold to multiple end users. Financial services work, healthcare applications and anything involving personal data processing typically adds 20% to 40% to baseline premiums.
Claims history creates the biggest premium variations. A single claim, even if successfully defended, typically increases your renewal premium by 30% to 50% for three to five years. Multiple claims or a pattern of client disputes can make cover difficult to secure at any price.
Most insurers offer excess options from £500 to £10,000 per claim. Higher excess reduces your premium by 10% to 25% but means you fund more of each claim yourself. For most developers, a £1,000 to £2,500 excess balances affordable premiums with manageable claim costs.
Common coverage gaps software developers overlook
Standard professional indemnity policies exclude certain technology risks that developers routinely face.
Intellectual property infringement claims often require separate coverage. If a client claims your code infringes someone else’s patent or copyright, standard professional indemnity may not respond. IP litigation insurance addresses this gap, but isn’t typically included in base professional indemnity policies.
Cyber liability requires specific cover. Your professional indemnity protects you when your inadequate security advice leads to a client breach. But if your own systems get hacked and client data stored on your development servers gets stolen, that’s cyber insurance territory. The distinction matters because data breach notification costs, regulatory defence and crisis management typically aren’t included in professional indemnity.
Loss of or damage to data held in your custody needs specific inclusion. If you’re hosting client code repositories, managing their databases during migration projects or storing their data for development purposes, check whether your professional indemnity includes custody, care and control coverage for digital assets. Many policies exclude this unless specifically endorsed.
Prior work protection requires careful attention to retroactive dates. When you first purchase professional indemnity, coverage typically starts from your purchase date forward. Claims arising from work you did before that date aren’t covered unless you negotiate a retroactive date back to when you started trading. This matters because claims often emerge years after projects complete.
What professional indemnity doesn’t cover for developers
The policy won’t respond to several common scenarios.
Contractual guarantees and warranties sit outside professional indemnity scope. If your contract promises specific performance metrics or guarantees certain outcomes, and you fail to deliver, that’s a contractual breach claim rather than professional negligence. Some policies include limited contractual liability cover, but many exclude it entirely.
Deliberate acts or dishonesty void coverage. If you knowingly deliver inadequate work, deliberately miss deadlines or make fraudulent statements to clients, insurance won’t protect you. The policy assumes honest mistakes and genuine professional errors, not intentional misconduct.
Trading losses and insolvency aren’t covered. Professional indemnity protects your clients from losses you cause them, it doesn’t protect your business from its own financial difficulties. If your company fails and you can’t complete contracted work, clients’ losses from that business failure typically aren’t covered.
Fines and penalties imposed by regulators usually fall outside the policy. Whilst defence costs for regulatory investigations often are covered, the fines themselves typically aren’t insurable under UK law. This matters if you work in heavily regulated sectors where ICO fines or FCA penalties could arise from your work quality.
External Resources
- HMRC IR35 Guidance. https://www.gov.uk/guidance/understanding-off-payroll-working-ir35. Official government tax guidance, sets framework for contractor relationships.
- The Chartered Institute for IT (BCS) – Code of Conduct. https://www.bcs.org/membership-and-registrations/become-a-member/bcs-code-of-conduct/. Professional body setting ethical standards for IT professionals.
Simplify Stream provides educational content about business insurance for UK companies, especially those with high growth business models that require specialist insurance market knowledge. We don't sell policies or provide regulated advice, just clear explanations from people who've worked on the underwriting and broking side.
