What does professional indemnity insurance for management consultants cover?
If you’re regarded as an expert in your field, then you are deemed to be a professional and professional indemnity insurance is designed to protect you from claims brought against you for losses incurred by third parties as a result of your advice or services.
Professional indemnity insurance usually forms the largest part of business insurance expenses, but it is not something you can afford to be without. If you are found by a court to have been negligent in the performance of your professional duties and you are uninsured, you would find yourself facing huge legal bills and damages that could bankrupt your business and consume all of your personal assets as well.
Professional indemnity insurance not only covers your legal defence costs, but also any damages awarded to a claimant and it will normally cover you for liabilities such as:
- incorrect or misleading advice
- breach of confidentiality
- breach of contract
- conflict of interest
- loss of documents
- failure to follow instructions
- defamation, libel and slander
- infringement of intellectual property rights
- violation of consumer protection or fair trading laws
- misleading and deceptive conduct
- dishonesty by employees.
While professional indemnity insurance was once only thought necessary for traditional professions such as doctors, lawyers and accountants, these days it has become essential for any profession where people rely on the advice or services you provide and this includes management consultants.
- Why Do Management Consultants Need Professional Indemnity Insurance?
- Tips on How to Compare Professional Indemnity Insurance for Management Consultants
- Public Liability Cover for Management Consultants?
- Professional Indemnity Insurance for Professional Indemnity Insurance FAQs
- Professional Indemnity Insurance for Management Consultants Common Exclusions
- Apply for Professional Indemnity Insurance for Management Consultants
Why Do Management Consultants Need Professional Indemnity Insurance?
As a management consultant, you are called upon to provide advice to your clients on ways to improve their businesses. Typical areas of involvement for management consultants include:
- strategic planning
- design and development
- quality assurance
- process re-engineering
- human resources
- systems analysis
- project management
- employee training.
Because management consultants provide advice and services that directly affect the profitability of a business, any act, error or omission on their part could have catastrophic results and attract large claims for losses incurred. Key exposures for management consultants include:
- misrepresentation of outcomes
- fraud or dishonesty
- failure to provide timely advice or services
- breaching client confidentiality
- conflict of interest
- lack of due diligence.
Professional indemnity insurance gives management consultants peace of mind. They know they can confidently provide advice and services regarding large-scale business changes, without lying awake at night worrying about whether the consequences of their actions could cost them their livelihoods. Professional indemnity insurance will be there to protect them should anything go wrong.Back to top
Tips on How to Compare Professional Indemnity Insurance for Management Consultants
There are many different insurers and many different variations on Professional Indemnity cover, so the best way to find the right insurance is to compare policies. As well as making sure the policy covers all the basic liabilities described previously, you should also look at the following things:
- Price – while this should not be the main consideration, professional indemnity insurance is not cheap, so affordability needs to be a factor. Price should always be viewed in the context of benefits included.
- Industry rating – this indicates the insurer’s standing and ability to pay in the event of a claim. Insurers are rated by Standard & Poors and ratings range from C, which is highly vulnerable to AAA, which is extremely strong.
- Industry relevance – because management consultants are exposed to risks that are specific to their profession, you need to make sure the insurer specialises in your industry and that the policy wording accurately describes your particular duties and liabilities.
- Clearly defined exclusions that don’t restrict the cover you require in your individual circumstances – exclusions should be read carefully and thoroughly understood, as they are the meat and potatoes of a policy.
- Cost-exclusive excess – ideally you want an excess (the amount you must pay towards any claim) that is cost-exclusive rather than cost-inclusive. This means it goes towards the settlement of the claim, rather than towards legal costs.
- Sufficient reinstatements – the policy should provide several reinstatements of the limit of indemnity, in case you have to make more than one claim in a year.
- Blanket coverage – the policy should cover not only you, but also anyone who provides advice or services on your behalf, such as your employees, agents and contractors.
- Run-off cover – ideally the policy should include run-off cover, which covers you against claims that could be made in relation to work you performed in a previous business.
Public Liability Cover for Management Consultants?
Public liability insurance protects businesses from claims made against them for injuries or property damage incurred by third parties. As a management consultant, you probably spend as much time at your clients’ premises as you do at your own and in either instance, there is always the potential for accidents to occur.
If your client or a member of the public suffers an injury or property damage as a result of your business activities, they can sue you and may secure a very large payout by the courts. Public liability claims can be in the millions of dollars, so every business that deals with the public, including management consultants, needs the protection of public liability insurance.
Fortunately, it is not expensive and can be purchased at the time you take out your professional indemnity insurance, but make sure you’re covered one way or another, because being uninsured and facing a public liability claim is not a position any business would ever want to be in.Back to top
Professional Indemnity Insurance for Professional Indemnity Insurance FAQs
Q. What is the definition of a professional?
- A. Anyone who provides advice or services in an expert capacity and in accordance with an established discipline.
Q. Why do I need professional indemnity insurance?
- A. Because even if you are not at fault, if a claim is brought against you and you are not insured, you will have to defend it in court at your own expense.
Q. How does professional indemnity insurance protect me?
- A. It protects your business and personal assets by paying the legal costs and damages for you.
Q. How much professional indemnity insurance cover do I need?
- A. It is normal to have at least $1 million of cover, but many businesses opt for cover between $5 million and $10 million.
Q. Who is covered under the policy?
- A. You, your business and any other partners, employees or contractors acting on your behalf.
Q. What is civil liability indemnity?
- A. This is cover for claims that arise from strict liability where negligence is not a factor.
Q. What is negligence?
- A. It is a failure to fulfil your duty of care towards another, which results in them suffering a loss.
Q. What is the retroactive date?
- A. The retroactive date is the date from which you are covered by the policy.
Q. What is run-off cover?
- A. It protects you from claims that might arise at a later date related to your activities at a previous business. It is normally maintained for at least six years.
Professional Indemnity Insurance for Management Consultants Common Exclusions
As mentioned previously, the exclusions are the meat and potatoes of a policy and represent the main differences between policies, so they should always be examined in detail. Typical exclusions might include:
- injury or death and loss or damage to property
- known circumstance (where the insurer was not notified of a potential claim situation)
- trading whilst insolvent
- any fines or penalties the insured is ordered to pay
- existing indemnity under another policy
- investment-related claims
- claims emanating from overseas (unless the policy provides international coverage)
- claims related to loss or manipulation of electronic data
- claims related to products made or sold by the insured
- asbestos-related claims
- claims involving nuclear explosion or radiation
- claims related to war or terrorism.
These kinds of exclusions are found in most professional indemnity insurance policies, but it is the more specific exclusions that you need to identify, the ones that could leave you underinsured or exposed to a particular risk common to your profession.Back to top
Apply for Professional Indemnity Insurance for Management Consultants
Management consultants bear a lot of responsibility. It is their advice and guidance that determines whether an ailing business turns itself around or whether a growing business moves ahead in the right direction. And with that responsibility comes risk, because the stakes are extremely high and so is the price of failure, which is why every management consultant, whatever area of expertise they work in, needs the protection offered by professional indemnity insurance.