Forty-three percent of the workforce in the United States is expected to be made up of freelancers by the year 2020, as compared to just 6 percent nearly 30 years ago.1 The rise of what is described “the gig economy” is driven by business professionals wanting greater autonomy outside of the 9-to-5 world. An increasing number of consultants increases the need for Miscellaneous Errors & Omissions (E&O) coverage.
This insurance provides protection for consultants from any financial losses associated with Professional Liability claims, whether or not they are unfounded. Clients may be taken to court in relation to erroneous acts, such as poor advice, misleading comments or reports, breach of contract, and the like.
The rise of consultants
“In the past, this coverage has been standard for doctors, accountants, and other self-employed professionals with specific designations. However, in the last couple decades, this has been broadened to include hundreds of additional professions, including IT specialists, management consultants, leadership trainers, and many others who are offering professional advice to clients,” says Chris Stephens, Senior Underwriter, Professional Liability Centre of Excellence, Burns & Wilcox Canada, Toronto, Ont.
Rahmad D. Bauldrick, Senior Broker, Professional Liability Center of Excellence, Burns & Wilcox, Chicago, Ill., adds, “We are seeing a trend that as companies and industries experience massive layoffs, more freelancers are coming into the economy.”
Individuals who may have become recently unemployed and started freelancing may not realize the implications of giving the wrong advice.
“This evolution is noticeable in the automotive and manufacturing industries especially,” adds Bauldrick. These individuals still have the experience that companies need – they just might not be able to employ them directly. Cases like this are seen on a daily basis as people who have been employed for decades are experiencing downsizing and beginning consulting careers.2
How to convince a consultant they need insurance
“The hardest thing to convince someone of is that they can make a mistake,” says Stephens.
Even if a client has not made a mistake, they only need to be accused of making one. Miscellaneous E&O covers legal defense costs relating to any accusation such as this, making it a very valuable piece of coverage to attain as legal fees can quickly become very expensive.
Stephens adds, “The number of lawsuits are growing in an increasingly litigious society.”
Individuals who may have become recently unemployed and started freelancing may not realize the implications of giving the wrong advice. As a quality control engineer, for example, unintentionally giving the wrong advice while working for an employer may have resulted in being reprimanded from a boss or fired. Whereas, giving the wrong advice as a consultant has the potential to result in costly legal fees. “Depending on what the client is consulting on determines the level of exposure,” Stephens says.
“Brokers and agents should position this coverage to potential clients as an important investment in their future,” says Bauldrick. “Miscellaneous E&O coverage is very broad today and is cheaper now more than ever, with policies starting at several hundred dollars for a million dollar limit.”
A costly lesson
Bauldrick describes one costly example where a management consultant got in over his head. A mid-size manufacturer brought in a consultant to evaluate operations in terms of plant efficiency. The consultant created a report making recommendations to streamline production, supply chain, and staffing. Shortly after the plan was drafted, a few of the plant’s key suppliers had changed. After the consultant made the recommendations, they did not follow up and it took the manufacturer nearly 18 months to implement the plan. During that process, certain key employees became frustrated and resigned. Additionally, the manufacturer lost productivity. The consultant ended up with a lawsuit against them alleging that they did not fully investigate the supply chain and understand the issues. The consultant’s plan allegedly ended up losing hundreds of thousands of dollars for the manufacturer.
Case studies like this can be discussed with clients to help them understand the potential extent of their actions. Due to situations like this, many larger companies now mandate that all consultants carry insurance.
“Miscellaneous E&O can be easily packaged with a General Liability policy,” says Bauldrick. “Coverage has evolved with the changing economy, and in certain classes, clients may be able to obtain a combined policy for the price of what carriers are charging for just Professional Liability.”
Stephens adds, “Whether the client is new to consulting or looking to make a change in insurance, it is important for brokers and agents to ensure that they have details on the client’s experience, qualifications, designations, licensing, education, past projects, current contractual agreements, revenue, and past claims.”
As freelancers increase and the length of unemployment extends, brokers can take advantage of the changing market to provide peace of mind to future clients. Any professional with a solid tenure of experience has the potential to consult in this digital day and age. This increasing segment can be an easy mark for brokers looking to expand their book of business.