Consultants Professional Indemnity Insurance Explained

Key takeaways

• Consultants that provide services or advice as a subject matter expert are potentially exposed to a variety of financial losses that can be protected with professional indemnity insurance
• Good contract risk managment should be combined with business insurance to safeguard the business and your reputation
• Professional indemnity for consultants is commonly requested under contract to minimise counterparty risk - especially if you're a smaller business

Professional indemnity insurance for consultants

Each consultancy firm is different, therefore it's important that your business insurance is tailored to your specific needs. Below we take a closer look at what you should considering when arranging PI inurance.

A completed proposal form is commonly requested to ensure you adequatly disclose sufficent information regarding the your scope of your services, with additional information that includes your standard client engagement letter and client report template. This level of detail provides insurers comfort about your risk profile - that you apply good contract risk management (i.e. capping limits and exclude conequential loss).

Why consultants need PI insurance?

By utlising good professional risk management, businesses sometimes believe they have little to no risk of having to pay sizeable compensation claims - if they have sought to cap their liability and exclude consequential loss under contract. However, your agreed contract with the client does not need to be adhered to by a court of law, especially in the case of professional neglience. 

What's typically covered under a PI policy?

• Professional neglience - failure to exercise reasonable skill and care in the discharge of their services
• Breach of contract - failure to fulfill their contractual obligations and the client suffers financial loss
• Inadequate investigation - failure to underake the scope of the agreed management consultancy services 
• Breach of confidentiality -  information is released which was not already in the public domain without the owner's consent
• Defamation - libel or slander, whereby something written down, recorded, or said, causes harm to the character of the person 

PI exclusions and restrictions to consider

• Bodily injury and property damage - if the consequences of your advice or services could mean that someone is injured or property is damaged, it is recomended that you specifcially seek cover without a bodily injury and property damage exclusion.

• Excluded professional services - for example if financial services is excluded and you provide your services or advice to company which provides financial services - an insurer may seek to deny coverage.

• Definition of professional services - is the definition broad enough to cover the scope of your activities and have you made the appropriate disclosures with respect to material circumstances?

• Risks covered by other insurance policies - it's important to remember that PI should be purchased in conjuction with other policies - such as cyber insurance, employer's liability insurance, directors and officers, ect.

What else do we need to consider?

• Law and Jurisdication and Territorial Limits

• Retroactive Date

• Claims Made Insurance Policy 

What type of consultancies need professional indemnity?

Below is not an exhastive list, but shows the wide variety of different types of consultancies that may consider professional indemnity insurance:

For further information whether you need professional indemnity insurance

What consultant activities carry a greater risk of PI claims?

About the author

Simon Taylor is a respected senior industry professional and a Chartered Insurance Broker with over 20 years’ of experience in the commercial sector as an underwriter, broker and director.