What We’ll Cover
The consulting industry has continuously expanded to cater to the increasing demand for professional advice for an array of specialized fields ranging from industries like real estate and business management to telecommunications. To keep up with the high demand, consultants are hiring employees and becoming more dependent on technology to store sensitive information. However, these advancements have also increased the risk and exposure that small consulting firms face. And, as the saying goes, “With greater risk comes greater responsibility.” Even though consultants often think of their services as low-risk, they still need to be prepared for the most common threats they’ll face like a lawsuit brought by a client.
Like every company, your current consulting company or future firm should have a foundation of insurance at the very least. This would include a general liability insurance policy or business owners’ policy (BOP). General liability insurance is coverage that protects and pays a third party if your company’s product or service is said to have caused injury or property damage. In comparison, business owners policies are a more flexible insurance plan that adapts and caters to the needs of your company. Let’s say, for instance, a consultant from your firm was working on-site at a company you were hired by. While he or she was delivering their services, the other company’s property was damaged. As a result, your consulting company has a very high risk of facing a lawsuit of the costs related to property damage caused by your consultant. This is an unnecessary and painful hassle that can be avoided. The general liability and/or BOP policy would respond to this event and save you the hardship of dealing with the issue, thus allowing your consulting company to stay focused on the true vision of helping your clients maximize their potential.
In addition, if you have or desire to have your business located in an office or retail space, all lease agreements will require, at the very least, a general liability policy, so you could have two benefits for the price of one insurance policy. You can also bundle liability insurance, property insurance, and other policies into the BOP. In other words, a business owners policy is a more cost-effective way to have a range of coverage for your business.
Commercial Auto Liability
In addition to general liability, it would be a good idea to invest in commercial auto liability insurance. Because consulting is a very hands-on profession and is known for the personal on-site client interactions, there is a higher risk for car accidents while you or your consultants are commuting to the job. Having a business auto liability insurance policy provides you with a cushion in case your employee or yourself are the party at fault in an automobile collision. This policy is especially important because personal auto insurance coverave will not respond if the accident occurred while bing used for businesses. The commercial insurance policy covers all the costs of property damages and physical injury that occurred as a result of the accident while you were commuting to a client meeting. Do not cause yourself unnecessary stress from the possible risks of litigation or high expenses from a work-related auto accident and allow a commercial auto liability insurance policy to put your mind at ease.
Miscellaneous Professional Liability
We are all human and mistakes are bound to occur whether we anticipate them or not. This being the case, a miscellaneous professional liability policy, or errors and omissions as it is commonly referred, was created to counter the effects of an unforeseen event. Today, time is money; therefore, people tend to be much less understanding about any mistake that may occur while you are providing your consulting services. As a result, there is the potential risk for lawsuits. This type of liability insurance aids by providing protection for errors with or failures to provide your consulting services. For example, you or your consultant might have a client who misunderstands the advice given or you might overlook an important fact that results in providing false guidance resulting in a lawsuit being brought against your consulting firm for failure of services. In this situation, the client could assert that your service was fraudulent and misleading because of the miscommunication or error and the resulting lawsuit by your client to compensate for something like lost revenue after using your service would be a significant blow. However, it does not stop there. The customers of your client who may have been adversely affected by the advice that you gave as a consultant might also have a basis to file a lawsuit against your practice. Miscellaneous errors and omissions insurance would respond to cover the costs associated with defending and settling these lawsuits potentially saving your consulting firm from bankruptcy.
Nowadays, our society is configured to operate in the new age of electronic innovation. Businesses are constantly evolving to cater to the tech-based, customer centric market by storing sensitive information online. In an effort to save time, effort, and money these methods have inherently created more risk. As business consultants, you likely have access to vast databases and software systems containing sensitive information such as confidential client records. A breach linked to your consulting services could be costly to both your company reputation and bank accounts. Therefore, you must ensure that these records are kept safe by protecting your electronically stored documents. However, regardless of the data security policies you put in place, breaches still happen. This is where insuring your company from data breaches as a result of threats such as hackers, physical data theft, viruses, and phishing is essential. If sensitive records are hacked or obtained maliciously, a cyber liability insurance policy will protect your consulting firm’s reputation and assets by settling lawsuits between those effected by the data breach and your company.
It is best to pair the cyber liability policy with a miscellaneous errors and omissions policy so that the E&O policy covers the potential failure of a service while the cyber liability protects the risk associated with the breach and loss of confidential client information. For a more detailed guide regarding these two types of insurance, make sure to read our informative article about the difference between cyber liability and technology errors and omissions insurance.
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In addition to the other policies, consider adding an umbrella insurance policy to your liability insurance packages. This is a beneficial tip because adding an umbrella policy will be cheaper than increasing the coverage limits of your other policies. The umbrella policy provides a protective insurance layer that guards your company from losses if your original policies do not cover the full amount of a claim. Further, umbrella coverage helps prevent major losses due to claims and lawsuits, and it helps your company preserve its assets. In addition, as a consultant, you may run into a new client that requires certain insurance coverage or limits in the newly formed contract. In our experience, consultants are often required by their clients to carry an umbrella policy with specific limits. In these instances, we usually suggest that our customers attempt to negotiate the limits being required by the client contract in terms of the umbrella limits because contracts often require limits that are unreasonably high.
All in all, insure that your independent consulting firm or start-up company has a strong foundation in terms of insurance to protect your company and your clientele. Having the appropriate insurance will allow you to provide your service with the peace of mind you deserve while avoiding the hardships of undesired lawsuits and potential loss of reputation. Ensure your consulting dream by insuring your consulting business.