Business insurance for consultants: What policies do you need?

Consulting may not seem like an industry that needs much insurance, but you may be surprised at just how high-risk consulting businesses can be. As a consultant, you take on a lot of responsibility when it comes to advising clients and providing your expertise, and with this high level of responsibility comes threats of lawsuits and legal claims. 

Investing in business insurance as a consultant can protect you from financially crippling claims — allowing you to focus on serving clients without worry. Let’s look at some of the most important insurance policies for consultants and some of the main risks your business may face.

What risks do consultants face?

Being a consultant comes with the kind of freedom, independence, and flexibility that desk-bound professionals don’t get to experience. But those perks come with a price. When things go south, it’s also your neck on the line. Consultants can be sued for things such as negligence, mismanagement, harm to a client or employee, and other problems that occur on the job.

As a consultant, you are an expert in your field. Clients hire consultants for a number of different reasons, such as marketing, IT, and human resources (HR), to name a few. No matter your industry, there are many different risks that come with providing expert advice, which is why having insurance is essential for consultants.

You must set clear expectations with clients. Otherwise, you risk clients feeling unsatisfied with your services, which can lead to a lawsuit.

Wondering what the main risks your consulting firm may face are? Let’s take a closer look.

Unhappy clients

The most significant risk that consultants encounter stems from clients being unsatisfied with the work provided — for instance, if your advice didn’t meet a client’s expectations or the advice negatively impacted the problem you were trying to solve. Your client may leave a bad review or, worse, file a lawsuit. To combat this, it’s important to clearly outline expectations in a legal contract.

Marketplace unpredictability

Economic uncertainty affects every industry. A downturn in the market or changes in the professional environment can have a drastic effect on your workload. When markets slow, consulting businesses may not be able to take on as many clients, which can interrupt your business activities and reduce cash flow.

Intellectual property theft

As a consultant, you may have different types of intellectual property (IP) that you’ve developed and registered, including copyrights, patents, trademarks, and trade secrets. It’s important to secure — and insure — your intellectual property, as it’s the main thing that differentiates your services from others. IP theft is a major growing problem, accounting for 1% to 5% of US GDP every year.

Data breaches

A data breach occurs when digital information on computers and servers is stolen. The number of incidents and the average cost of data breaches have been steadily rising every year. Data breaches can damage the reputation of your consulting firm and be extremely costly. This is why data breach prevention and protection is beyond important for any industry, including consultants.

Property damage and loss

As a consultant, you’re also responsible for your office, business equipment, and supplies. If anything happens to them, and you don’t have insurance, you’re on the hook. This can include any inventory, equipment, furniture, and supplies, as well as any vehicles you operate and your office space. Since consultants typically work with expensive equipment, property damage can be especially costly. 

Employee issues

While your employees are one of your greatest assets, they also pose a major risk. If an employee makes accusations against your business or is injured on the job, the employment legal battles and claims can be lengthy and costly.

Important business insurance policies for consultants

It’s important to make sure that your consultancy is properly insured against the risks you could face. In many cases, your clients will want you to have certain insurance policies in place to protect their interests — and they may ask to see a Certificate of Insurance to confirm that you have the right policies and enough coverage to last at least for the duration of the contract with them.

Let’s take a look at some of the most important insurance policies for consulting businesses.

Professional liability (errors and omissions) insurance for consultants

Hands down, the most important policy for consultants to invest in is professional liability insurance. In fact, in many cases, you may be legally or contractually obliged to hold this policy. Professional liability insurance, also commonly referred to as errors and omissions (or E&O), protects you from claims of negligence or professional mistakes. 

For example, IT consultants who make software recommendations or install entire systems may accidentally expose a client’s data, resulting in a data security breach. A professional liability policy, along with other insurance policies for IT consultants, will cover any resulting claims from the professional mistake.

The fact of the matter is that all consultants are human, so no matter how careful you are, you could always make a mistake, and depending on your industry, a mistake can be very costly.

An error made by a market analyst when modeling financial projections can result in a massive loss of revenue for the client. 

A management consultant who advises a client on their operations might inadvertently recommend changes that lead to decreased efficiency or financial losses. If the client files a claim alleging negligence, a professional liability policy can help cover legal fees and potential settlements.

Whether a client accuses you of making a mistake, failing to deliver services, or being negligent in your duties, a professional liability policy for consultants will provide you with the essential protection you need to run your business with a clear head.

General liability insurance

One of the most basic insurance policies for essentially any business, general liability insurance provides coverage for bodily harm, property damage, and other claims. While professional liability primarily covers professional mistakes and negligence, general liability covers claims related to other people or entities (“third parties”). For example, if you or an employee crashes a company vehicle into another vehicle, injuring the other driver, general liability insurance will cover any medical expenses.

It’s worth noting that general liability insurance only covers third-party injury and property damage. This policy does not cover employee injuries or damage to your consulting firm’s property.

Directors and officers (D&O) insurance for consultants

D&O insurance protects the executives and board members of your consulting firm from any lawsuits for which they might be held personally liable. While this type of coverage is not necessary for all firms, larger firms will benefit from it. D&O coverage provides company leaders with a certain amount of freedom to make decisions about the company without worrying about costly lawsuits. For example, if a board member of your company is sued for a decision they made as part of their professional duty, a standard professional liability policy will not suffice. However, a D&O policy will provide coverage for any claims that are made against the directors of your consultancy.

If there are any unintended consequences stemming from these high-level decisions, lawsuits could result — and they could personally name the leadership team.

Cyber liability insurance

With the growing threat of cybercrime, it has become more and more important for consultants to invest in cyber insurance. While obviously an important policy for tech-related industries, including IT consultants, cyber insurance is important for lots of other small businesses and essentially any professional dealing with sensitive digital information.

Cyber liability insurance is an important pillar of any risk management plan and protects your consulting firm against the costs of a data breach, covering expenses such as notifying customers, monitoring accounts, legal costs, settlements related to the breach, and other fees.

In our modern digital era, no industry is safe from cyberattacks. So, if you work with lots of sensitive digital information, cyber coverage is a must-have. You can think of cyber insurance as a last resort to protect your business in the worst possible scenario.

Workers’ compensation insurance

If you have employees, you’ll need workers’ compensation insurance. In fact, in all states except Texas, workers’ compensation insurance is a legal requirement. Workers’ compensation insurance covers expenses that occur due to an employee becoming injured or sick on the job. For example, if an employee falls down the stairs in your office building, your business is liable to cover their medical expenses as well as any wages during the employee’s time off work.

Depending on the severity of the injury, workers’ compensation claims can be pretty expensive, which is why insurance can be a lifeline for companies. This policy is a win-win for both employers and employees. It gives employees the peace of mind that you’ll be able to cover any workplace incidents and prevents your company from going bankrupt over claims.

Employment practices liability insurance (EPLI) for consultants

Another employment-related insurance policy that is important for consultancies is employment practices liability insurance (EPLI). EPLI protects companies from employee lawsuits stemming from claims of wrongful treatment (harassment, discrimination, retaliation, etc.), which can be time-consuming and costly. Employment claims can severely damage your company’s reputation, let alone cause massive financial strain. Unlike workers’ compensation, EPLI is not generally a legal requirement, but it shows your staff that you are committed to maintaining a healthy work environment and will protect you if claims do arise.

Business owners policy (BOP)

A popular business insurance policy bundle, a business owners policy (BOP) insurance combines three essential types of coverage: general liability, commercial property, and business interruption. So, instead of purchasing all of these policies separately, you can get all of the basic insurance for your consulting firm in a single, cost-effective bundle.

BOPs are perfect for smaller, low-risk consulting firms that may not need high policy limits or complex coverage types. On the other hand, larger companies with a higher risk profile may need to purchase policies separately, as a BOP likely won’t provide enough coverage.

Commercial auto insurance

Does your consultancy use company-owned vehicles? Then, you’ll definitely need commercial auto insurance. Commercial auto insurance works in much of the same way as a standard car insurance policy, but it is specifically designed for businesses. In most U.S. states, you won’t have much of a choice when it comes to purchasing this policy or not. This is because states legally require companies that own vehicles to insure them. Commercial auto insurance covers damage to vehicles (both company-owned and third parties) and medical bills resulting from an accident. You can also choose to add endorsements such as non-collision damage (vandalism, fires, etc.) and roadside assistance.

Protect your consulting business with comprehensive insurance

Running your own consulting business can be incredibly gratifying — and lucrative. That said, these companies don’t come without risk. Protecting your business, your clients, your partners, your employees, and your equipment should be a top priority. While there are many things you can do to minimize risk, business insurance is a crucial lifeline that gives you the freedom to do your best work without worrying about crippling claims or defending legal challenges. 

Apply online for Embroker’s business insurance for consultants and get a quote in just a few minutes.