Consultants are one of the most diverse business types within the professional services industry. Growing demand for consulting services has expanded the number of firms and independent consultants. Per CB Insights’ Industry Analyst Consensus, consulting is a $200B+ industry and businesses are taking advantage of the less costly option of hiring full-time employees.
Diverse businesses and changing market landscapes proves a need for more varied consultants. Businesses are focusing more on niche markets and are more likely to need assistance in streamlining operations and capturing market share. Specialties range from strategy, management, operations, HR, IT, or marketing. Typical consultant firms include technology companies, CPAs and tax professional, financial advisors, home inspectors, and contractors.
Nashville epitomizes this diverse mix of industries. The Nashville Chamber of Commerce identifies five target industries that drive Middle Tennessee’s economy: health care, corporate operations, advanced manufacturing, supply chain management, and music and entertainment. These segments require specialized consultant talents to propel businesses and our economy forward.
Even if a consultant excels at their craft, a dispute with a client may result in a professional liability lawsuit. When disputes arise, you could be accused of negligence even if you are adamant no misrepresentation or mistakes were made.
Why Consultants Need Professional Liability Insurance…
Lawsuits may destroy everything a consulting business has worked to build. Mistakes that trigger professional liability claims range from missed deadlines, breach of nondisclosure, improper documentation, loss of data, improper procedures or negligence handling data, misrepresentation, or failure to prevent a data breach.
In these circumstances, consultants need to protect themselves from both real and perceived risks. If a lawsuit arises, consultants may incur significant costs from attorney fees, unfavorable rulings, or damage payouts. According to courtstatistics.org, median costs for a liability lawsuit begins at $54,000 and can reach around $91,000 for the median contract dispute.
A Real Risk Scenario
CPAs provide a clear example. Clients send numerous tax documents from the prior year to their accountant. CPAs are under a tremendous amount of stress to organize, input, and file on behalf of their clients before the tax filing deadline. Working with multiple clients and an abundant number of documents opens the door for a data entry error. Submitting incorrect information may result in fines, additional work to correct the tax documents, and possible reputational harm to the client.
How Can I Protect Myself and My Firm?
Incorporating a business or forming an LLC can limit liability to the business and exclude risk to personal assets. But organizational structure is only the beginning. All consultants should consider Professional Liability Insurance. This type of insurance covers your legal defense, cost of settlements, court judgements, and various other expenses detailed in your policy.
Professional Liability Insurance should not be confused with General Liability Insurance. While the first covers work mistakes, the latter protects against common accidents involving clients and customers. General Liability Insurance covers lawsuits brought by third parties claiming your business cause property damage, caused them bodily harm, or customer personal injury. The most common claims are slip-and-falls, stolen property, or copyright infringement.
While necessary, General Liability Insurance fails to protect against all aspects of a consultancy type business.
How Much Does Professional Liability Insurance Cost?
The cost of professional liability insurance varies. Multiple factors are taken into consideration to determine the premiums paid. The type of policy along with its limits, deductible, and past claims history all factor in. Location of the business and revenue size may also play into the cost equation.
All costs are all based on risk. Larger companies need more employees working with more clients and projects, opening the door to greater risk exposure. More risks equate to added coverage. However, professional liability insurance may be just as necessary for independent consultants as larger firms.
What Happens If I Don’t Get Professional Liability Insurance?
Many businesses may continue to operate without buying a liability policy; however, consultants take on significant risks hoping mistakes will be avoided, or clients are always satisfied. In the unfortunate instance where one incident occurs, consultants need to understand how they will cover all the costs and if their business can afford to absorb these types of expenses.
Some clients require professional liability insurance from their vendors to conduct business. Failure to have this type of protection. Protect yourself and do not lose out on business opportunities by contacting your local agent today.