A soft economy that has eroded the job market over the past two years has sparked rapid growth in the management consulting industry. Some of the top professionals who once managed budgets, planned marketing strategy, devised production efficiency schemes and counseled career development now are working as consultants. These consultants are often facing professional liability exposures without the safety net they had as employees of their former corporations.

Two years ago, nearly 750,000 consultants—26% of whom were self- employed—held jobs, reports the U.S. Bureau of Labor Statistics. At an annual employment growth rate of 24%, their numbers are mushrooming. As their ranks increase, so does the need for professional liability insurance. They may face disciplinary proceedings, litigation for lack of performance, and pay for personal injuries or punitive damages, among a myriad of other exposures.

Smaller firms, those with fewer than 10 few employees, and individual consultants, can be particularly vulnerable. They often have types of professional liability exposures similar to larger firms, but they may lack the infrastructure to catch errors before they become professional liability issues. The Hartford Financial Services Group is answering this demand with a new professional liability product that is available as a stand-alone policy or as part of its Private Choice Encore!!^® commercial management liability insurance package.

Introduced earlier this year, “This policy provides comprehensive errors and omissions coverage at an affordable price point for consultants and small firms,” explains Michael Dandini, senior vice president for the company’s Hartford Financial Products management and professional liability unit. Depending upon specific circumstances, consultants can purchase $1 million of coverage for an annual premium of under $1,000. The policy has limits to $10 million.

Professional liability policies protect companies and individuals against losses resulting from acts, errors and omission in their performance of professional duties. This miscellaneous professional liability policy is designed for consultants with those types of exposures. It provides coverage for claims for personal injuries such as libel and slander, negligence, and punitive damages where allowed by law. The policy also covers losses for erroneous work performed by a subcontractor, failure to perform, poor advice or service, and disciplinary proceedings.

In short, the policy offers consultants “peace of mind,” from a cash flow standpoint. “This policy covers litigation expenses which can be a significant unplanned expense if a small firm were sued for its professional services,” says Dandini. Also from a risk management perspective, through the process of obtaining coverage, the consultant may learn about potential problems that could arise during the course of the consulting project. It is a claims-made policy for wrongful acts that occurred during the policy period. An option for a one-year extended reporting period can be arranged for an additional amount.

As the economy declined, layoffs left some corporations short of specialists, explains Dandini. Therefore, “They began looking for outside expertise. While the consultants have knowledge and experience in their particular fields, some do not fully understand all of the exposures they may encounter once they are on their own. Some small firms have extremely experienced staff.

“However, management consultants may put together a plan that doesn’t achieve the desired outcome,” Dandini continues. “The failure may have been due to poor execution by the client company, but the client sues the consultant for faulty service. The policy provides coverage for the defense and potential damages resulting from a lawsuit.”

Patricia Borowski, a senior vice president with the National Associa­tion of Professional Insurance Agents, says consultants need a definition of duties, well-established standards of conduct, and a loss prevention program to reduce risk. Even those with the same duties they had as internal employees now may face some challenges that they were not exposed to in the past. As an employee, project completion was important. “That is great when the team is internal,” she says. “Consultants, however, face more unexpected responsibilities and liabilities. The new challenge encompasses more than the ability to get the project completed within the timeline.”

For some small firms, a major financial loss could be ruinous. Therefore, a policy that offers the same comprehensive protection that larger corporations enjoy is valuable. Also, increasingly, corporations are requiring their consultants to carry professional liability coverage, so it is important for consultants to pay close attention to their consulting contracts, says Dandini.

“It offers large company coverage with small business pricing,” explains Darren Beck, CEO of Business Insurance Now, an agency in Allen, Texas, serving a national market of small businesses via the Internet. “We’re very excited about how it fits our target market. It fits very well in today’s environment.”

The Hartford’s new product and the “corporate culture” with a mission to serve small businesses, are agent friendly, says Beck. It helps producers who serve the small business market to offer insurance at “affordable pricing” similar to the comprehensive coverage targeted to larger firms.

“We found there was a large population of management consulting firms that were not served by brick and mortar agencies. They are the companies that do not have access to large brokerages. These companies often can’t find agencies that are interested in developing the market and have the expertise to develop the risks these companies have,” adds Beck.

The new coverage is more attractive and is easily available through agents and brokers who market The Hartford’s commercial products. The Hartford and Business Insurance Now have developed a data exchange system that allows the agency to submit information to get a quote for professional liability insurance for prospective clients.

Under that process:

• The consultant finds the source of coverage and completes an online application within 15 minutes.

• The completing of an online application takes eight to 15 minutes.

• The system flags items with underwriting concerns.

• Data is sent to The Hartford.

• The customer can receive a quote within 20 minutes.

• Customer signs a fully completed application.

A typical three-day process thus can be finished in 30 to 40 minutes, notes Beck. Speedy processing allows agents more time to interview and assess a client’s needs and potential exposures. “This new efficiency allows us more time to focus on determining the client’s risks. We can have a high-value conversation with the customer,” explains Beck. “Very commonly they sometimes do not realize all the risks they have, nor understand what types of insurance coverages are out there.”

The new product seems to have come at the right time for consultants. According to the U.S. Bureau of Labor Statistics’ 2010-11 edition of the Occupational Outlook Handbook, employment of management consultants is expected to continue to grow by 24% per year through 2018 as industry and government increasingly rely on outside expertise to improve the performance of their organizations. “Job growth is projected in very large consulting firms with international expertise and in small consulting firms that specialize in specific areas such as biotechnology, health care, information technology, human resources, engineering, and marketing.”