This Is Your Consultant
Any oversight or mistake on your part can inflict damage to your client’s reputation, therefore causing losses to their business. In such cases, you can easily face lawsuits for the damage caused.
Thus, having consultant insurance can give you the necessary protection from risks you can face as an independent consultant or a consultancy owner.
In this blog
Why Is Consultant Insurance Important?
The consulting business is a vast market. Statista estimated that management consulting alone is a $7.2 billion industry in the United States. Given the size of the sector, the risks are also numerous.
For instance, in February 2021, BBC reported that the consulting company Mckinsey paid a $573 million lawsuit from their client Purdue Pharma, to resolve claims across the US for fueling an opioid epidemic.
For a smooth consulting business, dealing with threats is imperative. Some of the dangers to keep in mind for a consultant business are as follows:
- A data breach can easily erase client data.
- Client dissatisfaction can destroy your business’s finances if it leads to a lawsuit.
- Any missed deadlines can incur hefty fines or lawsuits.
- Business interruption due to property damage or equipment failure
Hence, having a business consultant insurance policy provides you coverage against these risks and more while you work with clients.
Who Needs Consultant Insurance?
Consultant insurance is essential for both independent consultants and consulting firms.
- Independent consultant: If you work on your own and operate from a small office, you need to insure yourself against potential business risks.
- Consulting firms: To meet the high demands of the market, consulting firms are hiring more employees. This can bring in unique risks and threats to the business. Therefore, to safeguard against damage from these risks, consulting firms need viable policies in place.
What Policies are Included?
Business Owners Policy (BOP)
A business owners policy is a comprehensive package of three separate policies: commercial general liability, commercial property, and business interruption (BI) insurance. In any event, a BOP provides balanced coverage for independent consultants and small consulting firms.
Commercial General Liability Insurance (CGLI)
General liability insurance is the most favored policy for consultants. CGLI provides coverage against the following claims:
- Third-Party Bodily Injury: A client visits your office to discuss a project. A recently mopped floor causes them to slip and injure themselves. In this case, CGLI would pay for the medical costs and any legal fees if the client sues you.
- Third-Party Property Damage: When you visit your client at their residence, you accidentally knock over an antique statue. The client is furious and decides to sue you. Here, CGLI will cover you for any legal settlements, repair, and replacement costs for the damage.
- Personal injury: A client overhears your employee talking to one of your client’s customers. Your employee falsely tells the customer that the client has cheated previous customers. As a result, the client decides to sue you for defamation. In this case, general liability insurance will cover the legal fees, settlements, and damages.
Commercial Property Insurance
Commercial property insurance is vital to protect your business’s premises. If you work from home, your home insurance might cover the office you have set up but not the equipment you use. Moreover, this policy covers your business property, such as the physical location, work equipment, furniture, and computers in case of natural disaster or other covered perils.
Business Interruption Insurance
Your business income will be affected if your business faces a temporary closure. A business interruption insurance policy provides coverage when your business is shut down and cannot generate any revenue. Covered perils include fire, theft, vandalism, or natural disasters.
Commercial Auto Insurance
A consultant needs to travel often for business purposes. If you own a vehicle for your business, it is smart to get commercial auto insurance. Hence, this policy covers the cost of repairs to your business vehicle in case of accidents.
Workers Compensation Insurance
Workers compensation insurance is essential if your consulting firm has employees. Therefore, a policy is mandatory for private employment, except in Texas as per the Social Security Administration’s Annual Statistical Supplement in 2017.
Workers compensation gives coverage to your employees in case of workplace injuries and accidents. Generally, injuries in the workplace aren’t common in the consulting industry. However, your firm might end up with a hefty bill if something unfortunate were to happen. The coverages provided by this policy include medical fees, lost wages, and funeral expenses.
Errors and Omissions Insurance
Consultants make a living off of their expertise. However, people are bound to make mistakes and unfortunately, one lousy piece of advice can be costly for clients. This can land you and your business in court. In such cases, Errors and omissions insurance, or professional liability insurance, provides coverages for the following:
- Accusations of negligence
- Late services
- Work-associated errors
- Violation of trust
As per a report by the National Center for State Courts, defending a professional malpractice lawsuit has a median cost of $122,000. In such cases, errors and omissions insurance covers the legal fees, court fees, and settlements.
Commercial Cyber Liability Insurance
Consultants often handle their clients’ confidential and sensitive data. As a result, they store that data on their computers. If there is a data breach and the information is compromised, the consultant could have a lawsuit on their hands. As per NetDiligence’s 2019 Cyber Claims Study, breach costs for professional services averages around $90,000. For this reason, commercial cyber liability insurance is important. Additionally, the policy covers the expenses for data restoration, ransom demands, and other costs in case of cyberattacks.
The Wall Street Journal reported that Marriot International Inc. is suing Accenture over a data breach in 2019. Marriot accused Accenture of failing to maintain security controls in the hotel’s reservation system, which Accenture managed.
Inland Marine Insurance
Inland marine insurance covers equipment losses that occur while in transit from one place to another. As a consultant, if you travel with expensive equipment such as high-tech computers, this policy is equally important.
Commercial Umbrella Insurance
Commercial umbrella insurance is a viable choice for large consulting firms with various exposures to risks. Under those circumstances, the policy extends your existing primary policies’ coverage limits if the amount of the claim is too high.
For example, suppose your firm faces a lawsuit of $3 million for property damage and your general liability insurance only covers $1 million. An umbrella insurance policy will cover the $2 million leftovers.
How Much Does Consultant Insurance Cost?
Consultants work in many different fields related to research, consulting, strategizing, or book-keeping. As a result, several factors affect the cost of consultant insurance, such as:
- Nature of their work
- Industry type
- Size of workforce
- Value of the business property
- Claims history
- Business size
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