Most carriers will consider three main areas when underwriting professional liability insurance for consultants; the firm’s past claim history, their systems and procedures, and their area of practice. Just what the amount of consideration given to each category often varies from one insurance company to another. In some instances, a carrier may change their focus depending on the firm’s overall claim experience. Professional liability insurance rates are determined by an actuarial study of the areas of practice and the claims stemming from their main workload.
How consultant’s professional liability coverage works
The majority of insurance companies insure consultants for their professional services and the performance of those services. It is up to the consultant to determine how confident they are in a given area of practice in order to meet the commitment of being their client’s advocate.
Knowing their own limitations is important to their success and survival. This can greatly reduce the amount of errors one may face during the course of doing business as a consultant. Strictly from an underwriting perspective, a carrier would prefer to see a consultant concentrating their efforts where they thoroughly know the business and procedures as opposed to looking at an application that has a broad range of areas with added risks.
There are alternatives available, such as associating on a case-by-case basis with a consultant who specializes in a certain area of practice, or using a referral fee system with other firms. Developing a network of firms that can share their level of expertise may be in a firm’s best interest. When a clients needs are served, all parties’ win, and firms are more profitable, particularly when insurance carriers are involved in fewer claims.
Risk management is one way to stem the tide of claims
As the professional liability insurance for consultants market continues to change, professionals are faced with new underwriting restrictions, policy limitations and carrier requirements. Therefore a few risk management practices and procedures are in order. By identifying certain procedures that could help minimize the threat of a legal malpractice action, a consultancy firm can be at a greater advantage for success. The first step is to implement practices that could lead to the avoidance of such actions.