Guide to insurance for management consultants

For many management consultants, consulting is a natural progression in their career, having acquired in-depth experience in a specific industry, or a particular area of business.

Whether you specialise in business strategy, operations, HR, finance, IT, marketing, supply chain management or have specialist skills in a specific industry such as retail, hospitality, energy, construction, charity, healthcare, financial services or general business development, you are exposed to many risks when working as a self-employed management consultant.

In this guide to insurance for management consultants, we will explain:

• Why management consultants need insurance
• What insurance management consultants need
• The different types of consultancy insurance available to both freelance contractor management consultants and management consultancy business owners

Why do management consultants need insurance?

According to figures published by Consutlancy.uk, there are 63,000 management consultants in the UK, many of whom choose to work autonomously as self-employed freelancers or contractors, which for some consultants down the line develops into opening their own agency or taking on an employee.

When you choose to run your own business instead of working for someone else, it comes with extra responsibility such as paying your own taxes, saving your own pension and managing any business issues or risks. If something goes wrong, you have to resolve it yourself – whether that’s:

• An unhappy client
• A laptop being stolen on your way to a client meeting
• Fraudulent activity on your business bank account
• A client refusing to pay you
• A HMRC tax investigation.

This is where comprehensive business insurance can help independent management consultants. In situations where something does go wrong, carrying the right insurance can protect you financially, covering your legal fees, the cost of replacing equipment, compensation payouts and more, preventing you from having to pay out at your own expense and saving you a lot of stress.

Over time you’ll likely work with a variety of clients, bringing a fresh outside perspective to help overcome challenges and improve business performance. Often these clients are making top line business decisions and amending their business operations based on the advice you provide them.

The majority of the time, you’ll get to see your clients reaping the rewards of your recommendations and the value you have added but there may be occasions where a project doesn’t go as planned, despite your best efforts. If your client alleges to have suffered a financial loss following your professional advice, you are at risk of a claim being made against you and the legal costs that come with it. In this case, your business insurance policy would respond pay these costs for you.

What insurance do management consultants need?

Management consultant insurance can include a wide range of policies. Some of these policies include:

• Professional indemnity insurance
• Public liability insurance
• Employers liability insurance
• Legal expenses insurance
• IR35 contract reviews
• Portable equipment insurance
• Directors and officers liability
• Commercial crime insurance

Generally professional indemnity insurance is considered an essential starting point for management consultants with the nature of the job being based around providing advice.

Insurance packages are flexible and how you choose to build yours is up to you. Each business varies, so the insurance that will be right for you really depends on your personal circumstances.

If you have one or more employees for example, employer’s liability insurance will be a necessity as it’s a legal requirement, even if your staff are temporary or working on a part-time basis.

Consultant insurance requirements can also be influenced by clients. Some clients might stipulate that you have to hold certain types of insurance to work with them. Typically, this will be professional indemnity insurance, public liability insurance and employers liability insurance, if you have any employees.

Each insurance policy will protect you against different types of risks, for example legal expenses insurance provides tax protection and gives you access to a free hub of law resources plus a 24-hour legal helpline, while portable equipment insurance will cover devices like your laptop and mobile phone if they’re lost or stolen.

Below, we’ll explain more about each of the policies.

Professional Indemnity Insurance

Professional indemnity insurance for management consultants, also known as PI insurance or professional liability insurance, is regarded as an essential management consultancy insurance policy.

PI insurance for management consultants will protect your business if you’re found to have been negligent in professional services you have provided to a client.

Examples of when you might need professional indemnity insurance

This could include making an accidental error in your data collection which resulted in a business analysis and recommendations that were not quite right.

As a management consultant, your opinion is your biggest asset. Clients rely on it for improvements in their business but sometimes what may have worked well for one client might not deliver results at all for another client, despite them having similar business structures. If you give a client your opinion with the best intentions on how to improve their business or increase performance but that advice causes your client a financial loss, they might decide to make a claim against you.

If the client’s claim is successful, you could be left paying thousands in compensation and legal costs.

Holding professional indemnity insurance in these situations can prevent you from having to pay the legal costs and compensation owed.

It will also cover the cost of replacing or restoring any lost documents that you are responsible for, provide compensation for court attendance and protect you against the unintentional breach of copyright – for example if you used an image on your website or on your social media channels that despite being from a stock image library had some small print terms and conditions stating that you have to provide photo credit details with the image or that it cannot be used for advertising.

To summarise, professional indemnity insurance will typically respond to cover the following claims:

• A negligent act or error made during the course of your duties
• Unintentional infringement of intellectual property rights
• Loss of data or documents entrusted to you
• Unintentional breach of confidence
• Unintentional libel or slander
• Dishonesty

Public Liability Insurance

Public liability insurance, also known as PL insurance, will protect your consultancy business if a third party, such as a member of the public, accidentally suffers an injury that is caused by you during the course of your business activities.

Examples of when you might need public liability insurance

For example, if a client slips on a wet floor and injures themselves in a visit to your office, public liability insurance will cover any related legal fees, costs and expenses, plus the cost of hospital treatment.

Another example might be you accidentally knocking your clients laptop off a table, leaving the screen smashed, while you are working from their premises.

Public liability is particularly helpful for self-employed management consultants who regularly visit clients. Even if you work from home and a client turns up for a meeting, you’re still at risk of a public liability claim being made against you.

To summarise, public liability insurance will cover claims made against your business for:

• Injury to third parties
• Damage to third party property
• Libel, slander or defamation
• Wrongful arrest, imprisonment or eviction of any person
• Wrongful accusation of shoplifting
• Trespass, nuisance or any interference with right of way, by foot, air or water.

Employers Liability Insurance

For management consultants or management consulting agencies with one or more employees, employers liability insurance is a legal requirement under the Employers Liability Act (1969).

As an employer, you’re responsible for the health and safety of your employees while they’re working for you. This means that if one of your employees is injured while they’re working for you, for example if the floor in your office has just been moped but there is no wet floor sign up and your employee walks in, slips and falls to the floor hitting their head, your business is responsible.

Employers’ liability insurance will cover the legal costs of defending this type of claim, if made against you by an employee or former employee. It will also cover the cost of compensation for your employee’s injuries or disease, medical costs, loss of income and any other damages.

The Employers Liability Act states that employers must be insured with employers’ liability insurance for at least £5,000,000. If you have staff and are not covered by employers’ liability insurance, you could face fines of up to £2,500 per day (1).

Legal Expenses Insurance

Legal expenses insurance can offer real value for money. As a relatively low-cost policy, legal expenses insurance can protect you in a range of business-related circumstances.

This could include a contract dispute, recovering debts owed by clients or an employment dispute with a former employee. Any management consultant, no matter how careful and reliable you are, can fall victim to these kind of challenging situations, which can quickly rack up thousands of pounds in legal fees.

Some management consultants find work with former employers or find contracts from previous jobs. When you know and trust a client you’re working with, you might be tempted to skip drawing up a proper contract. After all, why would you need a contract if you’re working with someone you know?

Sadly, a large number of contract disputes we see arise are between former business partners and friends which is why it’s always worth having a robust contract for every client. If there is a disagreement with a client over what was agreed in the contract, legal expenses insurance would pay for your defence.

Legal Expenses Insurance can cover against a range of legal matters including:

• Contract disputes
• Tax investigations (including IR35)
• Jury service attendance
• Criminal defence
• Health & Safety investigations
• Employment disputes

Legal expenses insurance will pay your costs and expenses up to £100,000 in any one claim, as well as compensation owed if a claim against you is successful.

IR35 Contract Reviews

IR35 legislation has affected the way in which many self-employed consultants and contractors work.

After the IR35 reform in April 2021, medium-sized and large businesses employing private sector consultants and contractors became responsible for determining the consultant’s employment status for tax.

If you work with small businesses, which are defined as those that meet two of the following:

• Annual turnover of no more than £10.2 million
• Balance sheet total of no more than £5.1 million
• No more than 50 employees

You will remain responsible for determining your own IR35 employment status and will also retain the liability for tax. If ever you are challenged by HMRC, you will need to demonstrate due diligence that your ‘outside IR35’ decision is based on a proper assessment of the contractual terms and working practices.

Having a contract review can help you to gain a second opinion from an IR35 expert on whether your contract positions you inside or outside of IR35. If ever you are investigated by HMRC, you can use this report as evidence of due diligence.

With our IR35 Contract Review service, you’ll receive:

• Analysis of both the contractual terms and working practices of the engagement(s) using our tried and tested IR35 status questionnaire
• A comprehensive report, including a “pass” or “fail”
• A specialist opinion as to the IR35 status of engagement
• Recommendations to improve the contractual terms, so contractors can decide how best to be remunerated.

You can find out more about IR35 contract reviews here.

Portable Equipment Insurance

As a management consultant, you’ll likely be travelling to client meetings and working away from your own premises. When you’re commuting and working from a client’s premises, your equipment like your laptop and mobile phone are at risk of being stolen, lost or damaged.

Portable equipment insurance covers these belongings when you’re working away from the office, if for example your mobile phone is stolen on the train while travelling to a client meeting, portable equipment insurance will cover the cost of replacing this equipment, so you can get on with working as normal.

The types of equipment covered by portable equipment insurance include:

• Hand-held mobile technology
• Hardware and tools
• Laptops
• Mobile phones
• Projectors
• Printers
• Digital cameras
• Video cameras and equipment

At Caunce O’Hara we offer cover for business office equipment as standard as part of our Business Combined Liabilities insurance.

Commercial Crime Insurance

With criminals using more and more sophisticated ways to defraud businesses of all kinds, commercial crime has become increasingly common over the last decade.

Examples of when you might need commercial crime insurance

The traditional crimes like theft, which are usually covered under a commercial crime policy, are being replaced by crimes that exploit the technology you rely on day-to-day, like email.

Commercial crime insurance covers financial losses your business suffers due to theft, robbery, fraud or an electronic crime.

For instance, you might open an email claiming to be from a courier service and without realising, have inadvertently loaded spyware onto your computer allowing a third party to track your key strokes. Logging into your bank account provides fraudsters with all they need to access your funds.

Another scenario could involve receiving a letter chasing an invoice and advising of new account details. The invoice details are accurate and show the expected bill. You pay the invoice and it’s only when you are chased for payment a few weeks later that you realise the new bank details were those of the fraudsters. In situations like this, a commercial crime insurance policy can cover your financial losses.

A commercial crime attack could damage your business’s reputation as well as costing you a lot of money, which is why commercial crime insurance can be of benefit.

Directors and Officers Liability Insurance

If you are a director or officer of your business, you could be held personally responsible for a mistake or an allegation of negligence.

There’s a common misconception that if you’re working in a limited company instead of as a sole trader, claims cannot be brought against you personally, however this isn’t always true. If you are a director or officer of your management consultancy business, they can.

If say a claim for suspected fraud following a SFO (Serious Fraud Office) investigation or for dishonest tax payments following a HMRC investigation was made, it could be brought against you personally. As a director or officer, you’ll have unlimited personally liability.

This cover can provide protection against potential claimants such as:

• Creditors
• Employees
• Regulatory bodies (including HSE and HMRC)
• Customers/suppliers.

This type of cover will protect your personal assets in the event of a claim by paying for your legal liability as a director or officer of the business as well as your legal costs and expenses.

Directors and officers liability comes as part of our business combined insurance package. You can get a free quote for this here.

How much does insurance for management consultants’ cost?

The price of insurance for management consultants really varies depending on which policies you decide to take out and the level of cover you choose.

If you’re unsure of what level of cover to buy, think of a worst-case scenario and the likely costs involved in putting your mistake right. In some cases, a client might specify the level of cover they want you to have. It’s worth checking this in your contract before going ahead and buying your insurance.

Tailor your insurance year on year to adapt with your business.

At Caunce O’Hara, we offer specialist and reliable insurance policies for management consultants. If your business grows or your circumstances change, we can adapt your insurance to suit your evolving business.

For a quick online quotation for management consultant insurance, click the green button below, or give our award-winning team a call on 0333 321 1403.

CLICK HERE FOR A MANAGEMENT CONSULTANCY INSURANCE QUOTE

Related articles:

The advantages of working with a business management consultant

The need for business management consultants has never been greater

Running an international Management Consultancy service with Mervyn Stanley

Sources:

(1) https://www.hse.gov.uk/pubns/hse40.pdf

UK management consulting industry grows 7% to £10.6 billion (consultancy.uk)

UK Consulting Market | Consultancy.uk

What you need to know about Employers’ Liability insurance | FSB, The Federation of Small Businesses