Strategy Consultants Professional Indemnity Insurance
Strategy work produces a document rather than a change programme, and that document is frequently used to justify spending a great deal of money. A market assessment, a commercial due diligence report or a growth plan gets put in front of a board, a lender or an acquirer, and the decision follows it.
That is what separates this from general management consultancy. The claimant is often not the client. An investor who read the report, a bank that lent against the forecast or a purchaser who bought on the strength of the diligence can all claim to have relied on it, and reliance from parties beyond the client is the defining exposure.
Forecasts are inherently uncertain, and no consultancy guarantees them, so the defensible position is built on stated assumptions, disclosed limitations and a clear statement of who may rely on the work. Where a report travels beyond its intended audience without a reliance letter, the practice may have less control over who relies on the advice and the resulting exposure.
We can advise strategy and transaction advisory practices on professional indemnity sized to the deals their work supports, and on how reliance is managed in the engagement documents.
Common claims and risk exposures
The exposures that produce claims in this trade, rather than a generic list.
Third party reliance
A report prepared for one client used by an investor, lender or acquirer. The claim comes from someone with no contract and no agreed liability cap, which removes the protections the engagement letter was supposed to provide.
Commercial due diligence
Diligence supporting an acquisition. Where the business bought underperforms, the purchaser reviews what it was told, and the claim is measured on the difference between the price paid and the value actually acquired.
Forecasts and market sizing
A market that proves smaller, a growth rate that does not materialise, an assumption that was never justified. Defence rests entirely on whether the assumptions were stated and reasonable at the time.
Data quality in the underlying work
Strategy conclusions built on client data, third party research or survey work. An error in the inputs produces a wrong conclusion, and the question becomes what the consultancy should have verified rather than accepted.
Confidentiality across competing mandates
Sector specialists work for competitors in turn. An allegation that insight or data crossed between mandates is a serious claim that involves no error in any piece of work.
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 strategic advice, analysis and reporting. Sized against transaction values rather than fee income, because that is what the work supports.
- Negligent analysis and advice
- Reports and recommendations
- Claims made basis
- Defence costs, often in addition
Third party reliance
The critical feature. Cover needs to contemplate claims from parties who relied on the work without being the client, which is how most serious claims in this class arrive.
- Claims from non clients
- Reliance letters where given
- Lender and investor reliance
- Check the wording carefully
Transaction and due diligence work
Cover for diligence and transaction support specifically, which insurers treat as a distinct and heavier exposure than advisory work at the same fee level.
- Commercial due diligence
- Vendor assistance
- Market entry assessment
- Disclosed as a proportion of income
Breach of confidentiality
Claims alleging misuse of confidential or market sensitive information, which sector focused practices are exposed to by the nature of their client list.
- Misuse of confidential information
- Competing mandates
- Intellectual property allegations
- Conflict management evidence
Run off
Continuing cover after the practice ceases or is acquired. A transaction claim surfaces when the acquired business misses its numbers, which is typically one to three years after completion.
- Continues after the practice ceases
- Claims follow post deal performance
- Commonly six years
- Relevant on a sale of the practice
What an underwriter will ask
Having these to hand shortens the process considerably, and usually improves the terms.
- Fee income split between strategy advisory, due diligence and transaction support
- The largest transaction value the work has supported
- Whether reliance letters are given, to whom, and whether liability is capped in them
- Whether reports are prepared knowing a lender or investor will see them
- Sectors covered, and whether competing clients are served
- Standard engagement terms, including limitation of liability and permitted use clauses
- How assumptions and limitations are recorded in deliverables
- 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.
Transaction values supported
One of the main factors insurers consider. Diligence on a fifty million pound acquisition is rated on the fifty million, not on the fee, because that is the scale of the reliance.
Reliance practices
Whether reliance is given, how often and whether it is capped. A practice that never gives reliance to third parties is a materially better risk, and should evidence it.
Deliverable discipline
Stated assumptions, disclosed limitations and permitted use clauses in every report. In this class the deliverable is the defence, so its construction is rated as much as its content.
Sector concentration
Deep specialisation is commercially valuable and raises both conflict exposure and the chance that one sector downturn produces several claims at once.
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.
Guaranteed forecasts or returns
Any suggestion that a projection is warranted rather than reasoned creates an obligation beyond skill and care. Assumption and limitation wording in the report is what keeps the work on the insurable side of that line.
Uncapped reliance
Giving reliance to third parties without a cap exposes the practice above its policy limit. The reliance letter, not the engagement letter, is where that is controlled.
Investment advice
Recommending a specific investment is regulated activity, distinct from commercial analysis of a business or a market, and outside a consultancy policy.
Trading losses and fee disputes
The practice's own commercial losses are not claims, although a disputed success fee on an aborted deal is a common route into a negligence allegation.
Common questions
A bank relied on our report and is now claiming. We never contracted with them.
That is a common claim scenario in strategy work. A duty can arise where you knew a third party would rely on the work, whether or not you contracted with them, and without a reliance letter there is no cap on it. Notify your insurer immediately, since these claims are rarely small.
Should we ever give a reliance letter?
Often you have to in order to win the work. The point is to give it deliberately, addressed to named parties, with a stated cap and a defined purpose, rather than letting a report circulate and having reliance asserted after the event.
How do we defend a forecast that did not happen?
On the assumptions. A forecast is not a promise, and the test is whether the assumptions were reasonable and clearly stated when the work was done. Reports that set out their basis and limitations survive this argument; reports presenting numbers as conclusions do not.
What limit do transaction advisory practices need?
Materially more than their fee income suggests. If your diligence supports acquisitions in the tens of millions, a £1m limit is not proportionate to the reliance being placed on the work, and purchasers increasingly specify the limit as a condition of appointment.
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.