Business Insurance Guide for Consultants

Consultants meet a lot of people. But they take on major responsibility that’s no joke. And today, as more companies outsource professional services from IT to HR to accounting to management, the value of the U.S. consulting market has ballooned to $64 billion. Have you ever considered the importance of business insurance for consultants?

While consulting seems like a dream job–the flexibility! the variety! the travel!—the industry has unique risks others don’t. Because of the nature of the consultancy and client relationships, these vulnerabilities can be devastating financially and reputationally if they’re exploited. And though having a full roster of clients brings in money, more clients equals more liability. Before you even launch your consultancy, you’ll want to make sure you’re fully covered with the right professional business insurance.

What kind of risks do consultants face?

As a hired “expert,” you have to live up to—or exceed—your client’s expectations. And sometimes clients expect you to solve more problems than your expertise covers, like employee morale or organizational productivity. If your professional services fall short, your cool gig could come to an abrupt end.

Another liability in some of the more traditional consulting fields, including management, research, and finance, is the reliance on human thought and effort vs. more efficient technology, such as artificial intelligence or data modeling. The intensity of the work takes a lot of time and elbow grease that can burn you out. And the effort to stay current on all the latest technology to maintain your competitive advantage can be a full-time job in itself. Having a sense of what kinds of risks your consultancy could run into will help prepare you financially, strategically, and even mentally. Perform a risk management assessment regularly to scope your business risks, evaluate them, rank them, and determine how to deal with them. 

 Here are a few key risks specific to consulting:

Marketplace unpredictability. According to a research report conducted by the Hinge Research Institute, this is the biggest business challenge for consultants. While uncertainty has always been part and parcel of the consulting business, the past few years’ cultural, economic, and social turbulence has ratcheted up consultants’ fears by 30% from 2019 to 2021.

 Intellectual property theft. As a consultant, you may have different types of IP that you’ve developed and registered, including copyrights, patents, trademarks, and trade secrets. It’s important to secure—and insure–your IP, as it’s the main thing that differentiates your services from others. Believe it or not, theft and malicious attacks are responsible for 48% of IP loss.

Data breaches. A data breach occurs when digital information on computers and servers is stolen. Incidences of data breaches have been steadily rising every year. The resulting lawsuits have ensnared consultancies who find themselves fighting clients who want the consultancy to pay for the losses.

Property damage and loss. Being on the road a lot, as many consultants are, means that phones, laptops, documents, and other essential tools can easily get lost or stolen. As a consultant, you also have individual responsibility for your office, equipment, and supplies. If anything happens to them, you’re on the hook.

Employee issues. While your employees are one of your greatest assets, they’re also expensive. If they make accusations against you, employment legal battles are notoriously lengthy and costly.

What types of business insurance for consultants do you need?

Being a consultant comes with the kind of freedom, independence, and flexibility other desk-bound professionals don’t get to experience. But those perks come at a price. While on one hand you get the glory when a gig goes well, it’s also your neck on the line when, say, a client is unhappy with your services, your solutions break, or your employees believe you’ve fallen short. These things may not be your fault, but you could still be sued for things such as negligence, mismanagement, harm to a client or employee, and other problems that occur in the course of your business relationships. 

If and when this happens, you’ll need to hire legal counsel to address or fight these claims—and that’s expensive, time-consuming, and reputation-compromising. It’s incredibly difficult to come up with the kind of cash you’d need to pay these legal fees, especially if you’re a small firm. As a matter of fact, it’s nearly impossible to avoid problems in the regular course of doing business. As a consultant, you’re dealing with lots of different personalities, work styles, and rules and regulations. As the expression goes “stuff happens.”

That’s why it’s so important to make sure that your consultancy is properly insured against the types of claims you could face. Remember too, you’re not just protecting yourself. Your clients will want you to be protected with insurance, too—and they may ask to see a Certificate of Insurance to ascertain that you have the right coverage, the right amount of coverage, and enough to last at least for the duration of the contract.

Here’s an overview of the key business insurance policies you probably need as a consultant. Keep in mind, these policy needs will change depending on the type of consultancy you operate and your specific business needs. We’ve linked a few of our more specific guides for different types of consultancies throughout this section!

Directors & Officers Insurance (D&O) for consultants

D&O protects your consultancy’s executives from any lawsuits in which they might be held personally liable. It’s important to have this kind of coverage because company leaders need to have a certain amount of freedom to make decisions about the company based on multiple, sometimes intricate, factors. Leaders’ decisions can have wide-ranging impact on everyone from the office intern to external clients. If there are any unintended consequences stemming from these high-level decisions, lawsuits could result—and they could personally name the leadership team.

Employment Practices Liability Insurance (EPLI) for consultants

Consultancies need EPLI because it protects the company from employee lawsuits stemming from claims of wrongful treatment, such as harassment, discrimination, and retaliation, which can be time-consuming and costly. Not only that, they can have a negative impact on your employees—which could result in a poor work environment. And if you’re working with clients, unhappy campers can be the kiss of death.

Professional Liability (Errors & Omissions Insurance for consultants)

As a consultant, one of your main jobs is to make things work better. But helping a company improve can be a monumental job. Things can—and do—go wrong. For example, IT consultants tasked with making software recommendations or installing entire systems can accidentally leave a client’s data exposed – you need insurance policies to cover that. A market analyst can err in modeling financial projections, resulting in lost revenue for the client. A management consultant might need something like a BOP along with several other policies. An HR consultant can miss regulation compliance. Whether someone accuses you of a straight-up mistake, failing to deliver services, or being negligent in your duties, Professional Liability Insurance (E&O for short) provides protection for consultancies that are accused of errors, failures to deliver, or professional negligence. You can learn more about this type of coverage in our guide on professional liability insurance for consultants.

Cyber Liability Insurance

While Cyber Insurance is essential for IT consultants, it’s also a good idea for lots of other small businesses and anyone who deals with sensitive digital information to have it. Cyber protects you against the costs of a data breach or hack by covering expenses related to the breach, such as notifying customers, monitoring accounts, legal costs, and other fees.

Running your own business can be incredibly gratifying—and lucrative. But figuring out your business strategy, pricing, obtaining clients, marketing yourself, hiring people, and all of the other responsibilities consultants take on can be tough. Hey, if it were easy, everyone would do it! Protecting yourself, your business, your clients, your partners, your employees, and all of your equipment and ideas with business insurance gives you the freedom to do your best work without worrying about defending legal challenges. Honestly, it’s just good advice.