Business Consultants Professional Indemnity Insurance
A business consultant advising smaller companies faces a different problem from one advising corporates. The client has no legal department and no procurement process, the engagement is often a conversation and an email, and when it goes wrong there is no contract setting out what was actually promised.
The absence of paperwork is the exposure. Where scope was never written down, a client's recollection of what they were told fills the gap, and a consultancy defending a claim finds itself arguing about a conversation from two years ago with nothing contemporaneous to point at.
The second exposure is drift into regulated territory. Advising an owner on raising finance, restructuring for tax, handling a redundancy or arranging insurance can cross into activities requiring permissions or specific qualifications, and neither the general policy nor the consultancy's status covers that.
We can advise business consultancies on professional indemnity written for genuinely general advice, and on where the boundaries of that cover sit against the work they are actually asked to do.
Common claims and risk exposures
The exposures that produce claims in this trade, rather than a generic list.
Advice with no written scope
A significant risk. Disputes can arise where the scope of work was not clearly documented, and an informal engagement leaves the consultancy arguing about what was agreed. Everything else in this class flows from that.
Straying into regulated advice
Comments on investments, insurance, pensions or credit can amount to regulated activity. Detailed tax or employment law advice raises the same issue in a different form, and a general consultancy policy is not written for it.
Grant, funding and business plan work
Preparing applications and forecasts a lender or grant body relies on. Where funding is refused, clawed back or the forecast proves unachievable, the claim is the money the client did not get or has to repay.
Advice that leads to a commitment
An SME acting on advice usually commits something it cannot easily reverse: a lease, a hire, a system, a product line. The loss is the commitment rather than the fee, which is why limits in this class should not track income.
Owner relationships going wrong
Small company work is personal. A consultancy drawn into a dispute between shareholders or family members can face allegations from the side that lost, and from people who were never the client.
The cover we arrange
We arrange professional indemnity and related insurance around the services you provide, the clients you work with and the contractual requirements you face. The appropriate cover and limits will depend on your individual activities and the terms available from insurers.
Professional indemnity
Claims arising from negligent business advice, planning and support. The key question in this class is how widely the policy describes your activities, because the work is genuinely varied.
- Negligent advice and planning
- Activity description matters
- Claims made basis
- Defence costs included
Wide activity wording
Cover described broadly enough to match what you actually do, rather than a narrow definition that leaves half the engagement outside. Worth more here than in any other consultancy class.
- Matches the breadth of the work
- Interim and hands on support
- Training and workshops
- Funding and grant support
Public and employers' liability
Injury and damage arising while working at client premises, which for a hands on consultant means real time spent on site. Employers' liability is legally required once anyone is employed.
- Working at client premises
- Damage to client property
- Employers' liability, legally required
- Workshops and events
Cyber and data
Client financial records, customer lists and staff data taken into the consultancy's systems. SMEs often hand over more than a corporate client would, with less oversight of what happens to it.
- Client records in your systems
- Ransomware and restoration
- Breach notification
- Email compromise
Run off
Continuing cover after the consultancy stops trading. Advice to a small business is tested when the business struggles, which may be well after the engagement ended.
- Continues after you cease trading
- Claims follow the client's difficulties
- Commonly six years
- Arranged before closure
What an underwriter will ask
Having these to hand shortens the process considerably, and usually improves the terms.
- Fee income and a description of the services actually provided
- Typical client size, and the largest client by turnover
- Whether business plans, forecasts or funding applications are prepared
- Whether any advice touches investments, insurance, credit, pensions, tax or employment law
- Whether interim or executive roles are taken within client businesses
- How engagements are documented, and whether written terms are issued
- Whether training or workshops are delivered
- Claims and notified circumstances over the last six years
What affects the cost of your insurance?
The main factors insurers consider when assessing the premium.
How the work is described
The main variable. A tightly described general advisory practice is rated modestly; one whose description touches finance, tax or employment law is rated as though it does that work, because it might.
Documentation discipline
Written terms of engagement for every client is the single change that most improves both the premium and the defensibility of a claim in this class.
Funding and forecast work
Preparing figures a third party relies on brings claims from parties beyond the client, and is rated above pure advisory work.
Interim and executive roles
Taking a seat inside the client, particularly a board seat, moves the exposure and needs disclosing, because it is a different class of risk.
Conditions and exclusions to consider
Terms vary between insurers, so treat these as the questions to ask rather than a description of any one policy.
Regulated activity without permission
Advice requiring FCA authorisation is not covered by a general consultancy policy, and giving it without permission is a regulatory problem on top of an uninsured claim.
Directorship and management decisions
Where a consultant becomes a director or takes executive control, the exposure becomes a directors and officers one. Professional indemnity covers advising the business, not running it.
Guaranteed results
Promising a revenue increase, a funding outcome or a specific saving creates an obligation beyond reasonable skill and care, and it is generally uninsured.
Insolvency of the client
A client failing is not itself a claim. It becomes one where the allegation is that the advice caused or worsened the failure, which is a distinction worth understanding before responding to an angry owner.
Common questions
Most of our work starts with a phone call. Is that a problem?
It is the main problem in this class. You are not uninsured, but you are undefended, because a claim turns on what was agreed and you would have nothing to show. A short written scope and a fee note per engagement costs almost nothing and changes the position completely.
Where is the line between business advice and regulated advice?
Broadly, general commercial advice is fine and anything amounting to a recommendation on a specific investment, insurance, credit or pension is not. The practical test is whether you are guiding a decision about a regulated product. If you are, refer it to someone with permission and record that you did.
We helped a client get funding and the lender is now unhappy.
That is a claim from someone who was not your client, which is why forecast and funding work is rated separately. Notify your insurer as soon as you are aware of it, since third party reliance claims are harder to settle quietly than client disputes.
What limit should a small consultancy carry?
Not a figure based on your fees. Base it on what your client would commit on the strength of your advice, since that is the loss. For most SME facing practices £1m is the working minimum and £2m is common where clients are larger or forecasts are involved.
How do I get a quote from True Risk Solutions?
Call 01304 262880 and speak to a broker, or email info@truerisksolutions.co.uk with what you do, what you need cover for and a phone number with the best time to call, and a broker will call you back. We need a phone number to quote, because the cover and the price depend on questions that are quicker to answer on a call than by email.
Speak to a specialist who understands your industry
Tell us about your business and the work you undertake, and we will come back to you with cover options built around it. Call 01304 262880, or email us with a phone number and the best time to call and a broker will ring you back.