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Professional Indemnity Insurance for Management Consultants: What to look out for in the policy



In the dynamic world of business, management consultants play a pivotal role in shaping strategies, enhancing operations, and driving growth across all industries for companies, government agencies and non-profit organisations. They help navigate the risks and opportunities for their clients. But what about their own risks that they need to look out for? We take a deep dive into Professional Indemnity (PI) insurance specific for management consultants and look into some risk scenarios that may be applicable to the type of consulting that you do and may want to consider adding to your PI policy.


But first, a quick recap on what a PI policy is meant to cover. Management consultants provide advice and recommendations to clients, making them vulnerable to claims of professional negligence or errors. A dissatisfied client can file a lawsuit alleging financial losses due to the consultant's advice. This is when a PI policy comes into play. It offers financial protection by covering legal expenses, settlement costs and damages arising from such claims. This coverage provides peace of mind to consultants, enabling them to focus on delivering services without constant worry about potential litigation.


A financial loss experienced by a client can come arise from various scenarios. Here are a few for you to consider with your line of work.


Project delay


Getting sued by your client for the delay in delivery of services. Some insurers are willing to cover this risk scenario, provided the delay was due to an error or omission by the management consultant in providing the service. An example of this could be a six-month project timeframe agreed between a consulting firm and their manufacturing client to deliver process optimisation to reduce operational costs. The consulting firm encounters difficulties in coordinating with the client’s various departments and delivers the project three months late. The manufacturing company suffered financial losses as a result of the extended timeline, including increased operational costs and missed opportunities for improved production.


Recovery of fees


This is more specific for management consultants in the tech sector. In the event their client refuses to pay them for the services rendered due to alleged errors in the service, a PI policy can cover the fees under dispute. Note that insurers will usually put a sub limit on this coverage, meaning that you most likely will not be able to claim the full policy limit (e.g. 1m SGD) on this type of claim.


Intellectual property infringement


In the event that a third party claims that you have violated infringement of copyright or plagiarism, a PI policy can cover the associated legal defence costs. An example being that your company gets sued for allegedly copying a competitor’s framework for coaching. You can activate the PI policy to get coverage to defend the claim.


Subcontractors


It is quite common for management consulting firms to subcontract work out to other individuals to fill gaps in expertise and resourcing. Most PI policies will include subcontractor liability. This means that if the company receives a claim due to an error or omission by a contractor, the PI policy will cover the legal and financial liabilities of the claim.


The key thing to note is that whilst the company will be indemnified, the insurance company will likely go after the subcontractor to subrogate costs directly from them. This is important to know as you may want to check that all subcontractors have their own PI insurance policies in place.


Worldwide cover


With the digital nature of business, getting clients abroad has become so much easier, especially for consultants. Hence you will likely need coverage in case you receive claims from clients from abroad. Most PI policies will automatically include worldwide cover excluding claims coming from the US or Canada. When getting a PI quote, the insurer will need to know your estimated revenue for the next 12 months, including the breakdown of the geographies of where that revenue will come from. If you will have significant revenue coming from the US, Canada and Australia, be prepared for a higher premium. This is due to the litigious nature of those markets.


PR expenses


Lastly, some insurers will include a sub limit in the policy for PR expenses. This can be utilised in the event of a claim for the management consultant to engage with a PR firm to help counter potential reputation damage arising from the claim.


These are the key coverages that management consultants should be paying attention to when taking out a PI policy. Get in touch with us to see how we can help tailor the right coverage you need for your business.





Image credit: Freepik

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