How Much Does Consultant Insurance Cost
A Professional Liability policy with a $1 million limit is a standard requirement for most consulting contracts. The cost or “premium” for this coverage is based on the following:
The scope of the projects you take on and the exact nature of the services you provide is the first place insurance companies will start to determine the rate and premium for your policy. Generally the more involved you are the final outcome of a project the greater the exposure for loss and therefore the higher the premium. Example would be a marketing consulting that is making recommendations for a social media campaign versus an engineering consultant who is designing a critical component of a bridge.
While there is some loss exposure if the social media campaign fails, this can be mitigated or limited in the contract. The engineering consultant on the other hand has a huge exposure if the bridge collapses due to their miscalculation and mitigating this exposure in the contract is often not an option. The underwriter will require great detail on the other contractors involved in the project and the extent of their involvement to determine potential exposure of the applicant.
Previous coverage and loss history This verifies that you have had prior coverage and provides an underwriter’s an idea of how much you used that insurance. Having claims is not a bad thing and may actually help your rate than having no prior coverage at all. Similar to a credit history in that sense. Frequency and severity are two words used to evaluate a claims history.
For example you have clients that threaten you with legal action and you hire an attorney to respond to their letter. The attorney charges you $1500 and the matter is resolved. You decide to turn in a claim for the $1500 after you pay your deductible of $500. While this claim is not large it is something that could have been handled by the insurance company themselves. The better approach would have been to contact the insurance company initially and let them respond to the letter. This way you have no out of pocket expense (deductible) and no claim paid appearing on your loss history.
The experience of the consultant. Education and previous experience in their field play a significant role. Successful completion of similar project and testimonials from satisfied clients can also play a huge role in determining the rate and often help reduce the cost of the policy. Consultants should tell a complete story of how their experience lines up with the project they are working on and any steps they are taking to mitigate their exposure to litigation.