What is putting your firm at risk?
According to Forbes, the U.S. has nearly one million management consultancy firms. Combined, these businesses bring in $329.9 billion.
As organizations compete to become faster, leaner and more customer-focused, there is a growing demand for these highly paid professionals. But there are risks to being a management consultant that require appropriate insurance protection.
Since management consultants provide expert advice in human resources (HR) and staffing, operations, accounting, technology, marketing, and business strategy, you could be held liable if your recommendations don’t pan out and a client loses money. There are plenty of examples of companies suing their consultants when things go south.
Clients may have unrealistically high expectations for the work you provide. They may blame you if sales don’t improve or a new system doesn’t work. Consulting disputes commonly occur over performance issues, HR recommendations and plan implementations. In each of these cases, you could find yourself in court if you can’t reach a resolution.
Professional liability insurance is essential.
One big lawsuit could put you out of business. Because the risk of a lawsuit is so high, management consultants should make professional liability insurance a top priority. This type of policy will help pay for your legal defense and the cost of any judgments or settlements.
Professional liability insurance covers errors and omissions you’ve made, professional negligence, breaches of duty, misrepresentations, and nonperformance of professional services. For example, not fulfilling a contracted obligation or making a mistake in your work product would be covered by a professional liability policy.
An insurance professional can help you decide how much coverage to purchase. Policies generally start with a limit of $1 million and go up depending on the size and needs of your firm. Policies have an occurrence limit, the maximum an insurer will pay for a single claim. And they have an aggregate limit, the most the insurer will pay out during a policy’s term.
Policies are also sold on a claims-made or an occurrence basis. A claims-made policy covers you no matter when the harm occurs, as long as the claim is made while your policy is in force. An occurrence policy covers you if the policy is in force when the harm occurs, regardless of when the claim is filed.
Professional liability insurance doesn’t cover dishonest or intentional acts, employment liability, property damage, bodily injury, or medical expenses. Some of these exposures are covered by commercial general liability (CGL) insurance, which we’ll address next.
Commercial general liability covers bodily injury and property damage.
A companion policy to professional liability is CGL insurance. CGL covers injuries and property damage that occur as a result of your consulting practice. It’s an important coverage, since consultants spend a lot of time in their clients’ offices. If you or one of your employees damages a client’s property, your CGL policy will pay for the claim.
CGL also covers injuries and damages to clients visiting your premises. For example, if a client trips on argue and breaks their leg, they could sue you. Your CGL policy would pay your expenses. CGL policies include coverage for bodily injuries and medical expenses, property damage, and personal injuries such as libel, slander, copyright infringement and using another firm’s advertising idea.
If you have a staff, consider employment practices liability insurance (EPLI). EPLI protects you if one of your employees or managers sues you over an employment-related issue. Common claims include sexual harassment, discrimination, breach of employment contract, retaliation, wrongful termination, and failure to promote.
Like professional liability insurance, CGL and EPLI have policy limits so you can purchase a policy based on your firm’s size and needs.
You can also purchase umbrella insurance, which provides liability coverage beyond the limits of your underlying policies. Umbrella coverage also fills gaps in your existing policies and may be less expensive than raising the limits in each of those policies.
Talk to an insurance professional about the different types of liability coverage available so you can create the best plan for you.
Commercial property insurance
If you lease space or own a building, you’ll need commercial property insurance to cover damage to your premises. These policies protect you against fires, vandalism, theft, burst pipes and natural events such as windstorms. They cover the structure and the contents of your office, including furniture, computers, office equipment, files, supplies and inventory.
If you work out of your home, your office equipment may be covered by your homeowner’s insurance. Some homeowners policies offer limited business coverage, but usually no more than $2,500. Check with an insurance professional to see whether you can purchase a home business endorsement or you should get commercial property insurance.
In addition, if your employees drive company cars or use their own cars for business, you’ll need to purchase a commercial auto policy.
A BOP may a good choice for you
Many insurers offer business owners policies (BOPs), which bundle the policies most small firms need. The standard BOP includes CGL, commercial property and business income insurance. Business income, sometimes called business interruption insurance, replaces lost income if your business is interrupted by a fire, government shutdown or natural disaster.
While BOPs are a convenient way to bundle your basic business insurance needs, they can leave you with gaps in your coverage. Some insurers will allow you to add coverage to your BOP. Another solution is to purchase a commercial package policy (CPP), which lets you customize your coverage. You design your own package, paying only for the coverage you need.
Workers’ compensation
Workers’ compensation provides benefits to employees if they are injured or become sick on the job. Most states don’t require sole proprietors, independent contractors or self-employed people to purchase workers’ comp insurance. But you’ll need this coverage if you hire a staff or manage a larger firm.
Your premiums will be calculated based on your claim’s history and the type of business you operate.
Cybercrime insurance
Consultants often possess sensitive information about their clients’ businesses. You’ll want to take precautions to safeguard that information and follow all applicable cybersecurity laws on personal information.
Cybercrime insurance protects your firm from loss of data, network disruptions, loss of income if your business is shut down by a hacker, and damage to your reputation. These policies cover client notifications if you suffer a data breach, fraud protection and credit monitoring for affected clients, and expenses such as forensic investigations.
Being a management consultant can be exciting work. You’re spending time with top executives and helping them grow their businesses. Your work can have a huge impact on the future success of your clients. But you also need to ensure the success of your own business by protecting against lawsuits, property damage and on-the-job injuries.
For more information
For more information, please contact Rina Corigliano-Hart, Director of Client Engagement and Outreach, at RHart@OneGroup.com.
This content is for informational purposes only and not for the purpose of providing professional, financial, medical or legal advice. You should contact your licensed professional to obtain advice with respect to any particular issue or problem. Please refer to your policy contract for any specific information or questions on applicability of coverage.
Please note coverage can not be bound or a claim reported without written acknowledgment from a OneGroup Representative.
Written content in blog post: Copyright © 2021 Applied Systems, Inc. All rights reserved.
