There has been a fairly large shift in the thinking of many business professionals in recent years. While working in corporate America was once the goal, workers are now choosing to ditch the traditional 9 to 5 in search of a more flexible work-life balance. In fact, the number of individuals moving away from W2 employment and into consulting has skyrocketed since the pandemic. A recent study estimates that the number of independent contractors has increased 90% since 2020, with over 72.7million operating as consultants in the U.S. alone.
The downside? Consultants are acting as small businesses but aren’t protecting themselves like a business would – mainly due to the cost and perceived difficulty of doing so.
The Hidden Risks of Consulting
While being a consultant brings a multitude of benefits, it also brings a slew of risks. Consultants often handle sensitive client information and valuable data, so implementing risk mitigation strategies is necessary to avoid legal, financial, or reputational harm. To put it in perspective, here are just a few of the areas in which a consultant may face legal action from a client:
Guidance Errors: This refers to when a consultant provides incorrect, misleading, or inadequate advice that leads to negative consequences for a client. While often unintentional, this can happen when there is a misinterpretation of data, lack of expertise, or failure to consider critical factors in decision-making.
Contract Disputes: These types of disputes can be the result of a number of scenarios, including when there is a disagreement between a consultant and a client regarding the terms, scope, or execution of a contract. Disputes may involve issues like payment terms, project deliverables, timelines, or contract interpretation.
Cyber Risks: As working relationships become increasingly digital, consultants are often granted access to sensitive client information, including customer data, client financials, and more. Many consultants do not have robust cyber protocols in place, making them prime targets for criminal activity like hacks and phishing scams.
The Role of Insurance in Mitigating Consultant Risks
Insurance is crucial for consultants to manage risks. It covers legal defenses and settlements, as well as property damage, personal injury, and other incidents that may occur during their work. What types of coverages should consultants consider having? While specific consultant industries may require additional protections, the three key coverages every consultant should have include:
Professional Liability: If a client suffers financial loss due to faulty advice, inadequate analysis, or failure to meet contractual obligations, they may choose to take legal action. This coverage helps protect against these risks by covering legal costs and potential damages suffered as a result.
General Liability: This covers risks related to physical injuries, property damage, or third-party claims arising from business operations. General liability protects against incidents like a client slipping in the consultant’s office or accidental damage to a client’s property. General liability insurance helps cover legal fees, medical expenses, and settlement costs.
Cyber Liability: Consultants often handle sensitive data, so this coverage protects them in the event of a data breach, hacking incident, or cyberattack that compromises client or business information. Cyber liability insurance helps cover costs associated with data recovery, legal fees, notification expenses, and reputational damage resulting from a cyber incident.
Don’t Wait for Something to Happen
No matter where a consultant is in their business journey, from just starting out to celebrating their tenth client, having the right protections in place is essential. Accidents happen, and that means as a consultant, they’re already at risk. Finding the right coverage ensures success and business continuity for them as well as for their clients.
JoAnne Hammer is the CIC, Program Manager at Insurance Canopy.
Photo by Microsoft 365 on Unsplash
