Insurance for a new consultancy

What a consultancy is actually exposed to

The core exposure is economic loss following advice. Your output is a recommendation, a plan or a decision, and the client spends money on the strength of it. If it was wrong, the money is gone and the client looks at you. Nothing has to be broken and nobody has to be hurt for that claim to be serious.

What that looks like varies by discipline, and the variety is the point. A management consultant recommends a restructure and capacity comes out of the wrong function. An HR consultant advises on a dismissal process a tribunal later finds procedurally defective. A marketing consultant delivers a campaign using material the client did not have the rights to use. A recruiter places a candidate whose claimed qualification was never verified. A trainer’s course notes state a requirement that has since changed, and delegates act on it. A project manager’s cost plan is out and the client has already committed to it.

Then there is everything that has nothing to do with your advice: someone trips over your equipment in a client’s office, a delegate is injured in a hired room. And the exposures that look small until they are not — confidential information moving between clients who turn out to be competitors, a report that criticises a named supplier, who owns the intellectual property in what you hand over, and scope creep into work no engagement letter ever described.

What cover a new consultancy typically needs

Professional indemnity. The primary cover, and the one that matches the main exposure. It responds to civil liability arising from the professional services described on your schedule, and pays the cost of defending the allegation as well as putting the loss right. Defence costs matter more than people expect: a claim that eventually fails still has to be answered.

Public liability. Injury to third parties and damage to their property. If you visit clients, run sessions in hired rooms or work in occupied buildings you need it, and client contracts will usually ask for it by name in any event.

Employers’ liability if anyone works for you. It is a legal requirement for almost every UK employer under the Employers’ Liability (Compulsory Insurance) Act 1969, the law sets a minimum of at least £5m, and the certificate has to be available to your employees. A company whose only worker is its sole owner is generally exempt, but the exemption turns on whether anyone works under your control, which can include casual help. The legal requirement is set out here.

Cyber, once you hold client data. Consultancies accumulate it quickly, and it is a different exposure from bad advice needing a different policy. Cyber cover is explained here.

One distinction worth raising early: if you take an interim executive role, sit on a client’s board or act as a statutory director, you have moved from advising the company to running it. That is a management liability question rather than a professional indemnity one, and it is much better dealt with before you accept the role.

What clients and contracts typically require

Most new consultancies buy cover because a client asked. The consultancy agreement or framework terms will name the classes required, set a minimum limit for each, and often require cover to be maintained for a period after the engagement ends. Large corporate and public sector buyers usually want evidence at tender stage, before there is any work to insure.

Four things decide whether your policy satisfies the clause: which classes are named, what limit each carries, whether that limit is any-one-claim or in the aggregate for the year, and how long cover must continue after completion. A limit in the aggregate is a smaller promise than the same number any-one-claim, and maintaining professional indemnity for years after a job is a real cost that belongs in the fee. If a client asks for a higher limit than you carry, raise it before you sign.

What an underwriter wants to see from a firm with no trading history

A specific description of what you do. “Consultancy” tells an underwriter nothing, so they price the worst thing the word could mean. “Operational improvement consultancy to mid-sized manufacturers: process mapping, capacity analysis and implementation support, no interim management, no financial advice” tells them what they need, and usually prices better.

Where you and your colleagues did this work before. Employers, roles, dates, the kind of work, and whether it sat under someone else’s professional indemnity policy. This is what stands in for a trading history.

Estimated fee income for the first twelve months. An estimate is expected. Day rate multiplied by realistic working days is a respectable way to arrive at one.

How you contract. Written engagement terms, a defined scope, agreed deliverables and a sign-off process are predictive of fewer and cheaper claims, which is why the question is asked.

Anything that crosses into regulated territory — financial promotions, investment advice, immigration advice, reserved legal activities. If any part of what you plan to do might fall inside one of those regimes, say so before inception. It changes the answer.

Claims, complaints and circumstances, including anything from previous employment that could attach to you personally. A disclosed matter is a rating factor; an undisclosed one is a reason to argue about a claim later.

Getting cover in place before the first engagement

Professional indemnity is claims-made. The policy that answers a claim is the one in force when the claim is made, not the one in force when you did the work. Doing an early piece of work uninsured and buying cover afterwards does not retrospectively protect it: the later policy will exclude what you already knew about, and will usually carry a retroactive date cutting off anything done before inception. Set inception on or before the date you begin chargeable work, even if the first contract is not signed. The timing question is worked through in full here.

Public liability runs on a different trigger and simply needs to be live the first day you walk into a client’s building. One situation is common enough to name: many consultancies start with a former employer as their first client. That work is now yours, it sits under your policy rather than the one that covered you as an employee, and it needs cover from day one of the engagement.

Frequently asked questions

What insurance does a new consultancy need?

Professional indemnity for the advice, public liability if you go to client premises, and employers’ liability if anyone works for you. Cyber matters once you hold client data. Your exposure and your contracts decide, not your job title.

My work does not fit any of the named professions. Does that matter?

No. Consultancy is usually placed on a general professional indemnity wording driven by the business description on your schedule rather than by a professional category. What matters is that the description covers everything you actually do.

Do I need professional indemnity if I only give an opinion?

An opinion is exactly what professional indemnity exists for. The question is not whether you produced something physical, but whether a client could lose money by relying on what you said.

I am the only person in the business. Do I still need employers’ liability?

Usually not, while that stays true. The exemption for a company employing only its owner is narrow and stops applying the moment anyone else works under your direction, including casual help. Confirm before you take anyone on.

What if my consultancy does several unrelated things?

Describe all of them. Mixed activity is normal and insurable. The risk is a schedule that describes half of it, because the missing half is where the coverage argument starts.

A client wants a higher limit than I have. What are my options?

Ask before you sign. A limit can usually be increased, and the cost belongs in the fee for that work. Signing a clause you cannot meet is the option to avoid.

Related reading: Insurance for a new business · What you need to get a quote · Cover before you start trading · PI vs public liability · What drives the price

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy.