The Importance of Business Insurance for Management Consultants
In management consulting, your clients look to you for your unique expertise and advice on how they can develop strategies for success and improve their performance. To make this happen, you'll need to bring in your own proprietary experience, methodologies, and strategies in order to make recommendations to your clients. This is just part of doing your job – but it also exposes you to certain risks that aren't as present in other fields.
Among other precautions that management consultants make in order to reduce the risk of an unhappy client or a poor outcome, protecting yourself with Professional Liability Insurance for management consultants is an important way to safeguard yourself and your company.
Business insurance, especially Errors & Omissions coverage, is a smart choice for pretty much every business, but when it comes to people who offer consulting services, it is absolutely essential. Don't make the mistake of thinking your General Liability Insurance will protect you from claims of errors and omissions in your professional work – it does cover many liabilities, but generally not ones relating to professional advice and services.
E&O Insurance (also commonly called Professional Liability) provides the extra layer of protection you need for this distinctive line of work. Specifically, this coverage will protect you from financial loss in cases where a client is not happy with the outcome of one of your recommendations, if they feel the service did not live up to their expectations, or if they experience a financial loss because of advice you gave them as a paid consultant.
Industries where E&O Insurance is most commonly needed are those such as doctors, engineers, and lawyers. A few other lesser-known fields that need Errors and Omissions coverage include advertising agencies, hosting companies, designers, and (you guessed it) management consultants. Basically, if you offer a professional service for a fee, you have E&O exposure and should get the requisite insurance to protect your business.
Obviously you do your best to give sound advice as a consultant, but you are not able to control every factor that affects your client. They may face other difficulties that alter the outcome of your recommendations, may not implement them exactly as you hope, or may simply misunderstand the scope of your service. Or, being human, perhaps you just make a bad call. It happens. E&O Insurance is there to help you plan for a worst-case scenario.
How Professional Liability Insurance Works
Professional Liability Insurance protects your business in two essential areas: legal defense fees, and settlement expenses or judgments (if you are found liable and have to pay).
The typical E&O policy will cover both these areas, whether or not the allegations are valid. Just the sheer expense of appearing in court, hiring an attorney, and defending a lawsuit can be gargantuan, whether or not you win. The cost of a lawsuit, in a nutshell, can be enough to push many consultants into extreme debt or even bankruptcy.
Typical Errors & Omissions Insurance is either on a claims-made or an occurrence basis. For claims-made policies, a claim is only covered if you file it during the coverage period of the policy in question. Occurrence policies, on the other hand, require the actual event in question to have occurred during the coverage period for it to apply, usually provided your coverage was continuous and did not expire. Talking to your insurance agent can help you determine which policy type is ideal for your particular business. Either way you go, it's essential to make sure you don't let your coverage expire, as this leaves you more vulnerable to risks.
Defending a Claim
If someone files a lawsuit against you alleging professional negligence, your Professional Liability Insurance will kick in to help you prepare your legal defense and defend your case. Mistakes are inevitable, but of course it's always a good idea to take as many steps as possible to keep suits from happening in the first place:
- Make sure you have a written contract that details exactly what service is provided, your exact fees for delivering it, and what is included and excluded. Being up-front will keep nasty surprises at bay.
- Keep open lines of communication throughout the entire service delivery. Set expectations clearly and offer regular status updates to reassure the client.
- Implement procedures for quality control, and regularly audit them to make sure that they are being followed properly.
While these best practices will help mitigate the likelihood of a professional negligence claim, unfortunately your clients' satisfaction is impossible to guarantee. Your Errors & Omissions coverage provides a safety net against the unforeseen. Defending yourself against a lawsuit is expensive and exhausting, whether or not the suit is reasonable. E&O Insurance for management consultants will safeguard your business even in the face of the unexpected.