Many recruiters are under insured against the needs of their clients, putting themselves at risk from potentially ruinous claims, it has been claimed.

Matthew Sanders, managing director of de Poel, told Recruiter that based on audits of the driver and logistics recruitment agencies it works with, recruiters were signing client service agreements stating insurance cover was a certain figure when in fact it was less. “Seventy per cent are under insured against their clients’ requirements,” he said.

David Crabb, de Poel’s client services director, said that whenever de Poel discovered under insurance it informed the end the user and referred the agency to its contractual obligations. Clients typically ask for £2m of professional indemnity insurance. This covers recruiters when agency staff cause damage to a client’s property, such as wrecking a computer, or injuring another worker.

Crabb said he hoped that once an agency was informed it was under insured it “would have a desire to rectify this immediately”. Subsequent audits, finding continuing under insurance are followed by a request that the agency provide documentation that insurance has been increased to the required level, he added.

Crabb said agencies that failed to have the correct level of insurance cover risked suspension or removal from its supplier list. While ultimately this was a decision for clients, this course of action would be taken after a recommendation by de Poel.

“There have been occasions when a client stopped using an under-insured agency and we expect to see more of it,” he said.

Jim Allison, managing director of insurance services firm Allison & Partners, told Recruiter that the practice of under insuring is not limited to driver and logistics recruitment agencies: “I certainly come across a lot of people who are inadequately insured. They will sign a client’s terms of business without any idea of the liability they are exposing themselves to.”

Many recruiters have signed clients’ terms of business requiring they have £2m to £5m of professional indemnity insurance when they only have £1m of cover, said Allison. Under insuring was largely confined to “run of the mill high-street agencies” rather than among “blue chip agencies”, he added.

Allison warned that being under insured is “potentially ruinous” for a small business. “The end user will hold the agency fully responsible for whatever happens” and the recruiter would be liable for any shortfall between the level of professional indemnity insurance in place and damages awarded to the end user, he explained.

Allison said the main reason for inadequate insurance cover was cost. This had been exacerbated by the recession as recruiters seek to economise and consequently cut corners, he said.

Dan Maloney, joint MD of construction and property recruiter Judd Farris, told Recruiter: “I would be surprised if people couldn’t find other ways of saving money before taking such a big risk that could mean the end of their business.”

Maloney said his company always checked that its professional indemnity insurance was “at least sufficient” with the terms of business it signed up to when placing interim or contract staff.