Risks of damage and insurance for the design and consulting industry – see examples of insurance for your industry

Recognising what insurance is needed, and what situations are covered, may be difficult for design and consulting business owners. This page contains information about insurance for the industry and examples of losses.

 

Professional indemnity insurance 

Consultants often work with several customer companies. Design requires special care and precision, as any errors in the plans may result in damages to the client or a third party. We recommend Professional Indemnity Insurance for companies that provide design services. 

Professional Indemnity Insurance covers losses caused by design errors made by the consultant. These may include bodily injuries, material damage and financial losses for which the policyholder is contractually liable. The liability for damages may be the result of an error, deficiency or omission in designs, research results and measurement results.  

Example: Electrical plans for a renovation project

Our policyholder was in charge of the electrical plans for the renovation of a church. The general contract terms for consulting services (KSE) were applied in the contract between the policyholder and the parish. When carrying out the repairs, it was discovered that the electrical designer had not done the preparation work well enough, and the plan contained errors. 

Due to the insufficient electrical design, the parish incurred additional costs for extra electrical and construction work. The biggest individual cost consisted of the new space designed and built in the main building. The contract between the policyholder and the parish had not specified the consultant’s maximum indemnification liability. Therefore, the upper limit for indemnification liability was, as stated in the KSE contract terms, the consultant’s fee.  

The amount of the loss was lower than the consultant’s fee, so the policyholder indemnified the parish for the entire loss. The expenses caused by the loss were indemnified under the Professional Indemnity Insurance, less the deductible. 

Example: Structural designs for a new construction project

The building designer made the structural designs for a new development site. The general KSE terms and conditions were not applied to the design contract, nor had any maximum indemnification liability been agreed.

The secondary trusses of the building’s roof adjoining the exterior walls were designed to be too long during prefabrication planning, which was part of the design assignment. Many of the trusses had to be shortened either at the site or already at the factory before transport to the site. This repair work and extra costs to the customer resulted in losses in excess of EUR 10,000 to the customer. The design fee was EUR 8,500.  

Although the designer and customer did not apply KSE terms and conditions, compensation was paid to the same extent as if the consultant had been liable under these terms and conditions, that is, up to the maximum amount specifically agreed in the contract or in the absence of such a provision, up to the fee amount. On the basis of the Professional Indemnity Insurance, compensation was made to EUR 8,500. 

Professional liability insurance for IT company consultants

Professional liability insurance for IT company consultants is a suitable insurance for IT companies. The insurance covers losses arising from errors in IT consultation or other professional services. 

Professional liability insurance for IT company consultants covers bodily injury, material damage and financial loss caused to the other party. The liability for damages may be based on factors such as an error, deficiency or omission in plans, calculations, reports, counsel, instructions or equivalent expert service.

Example: Operating system crash and loss of data 

Company A delivered a software application to its customer B and provided them with database maintenance and monitoring services. B’s production environment crashed. According to an expert, the crash was caused by a fault in B’s operating system.

Before the incident, A had performed miscellaneous work for B, in connection with which A had deactivated backup copying. As a result of this, the system data for the last two days could not be restored after B’s IT system crashed. According to A, they should have informed the customer that backup copying had been deactivated, but for some reason this had not been done.

B was of the opinion that A was liable for the resulting extra costs, overtime and interruption of operations. B claimed compensation from A for the aforementioned costs, as well as the related investigation and legal expenses. A denied its liability and stated that its contractual obligations did not include the maintenance and servicing of B’s applications and servers in the extent proposed by B. IT2010 General Terms and Conditions were applied to the service agreement. In addition, a licence agreement for the software application had been concluded between A and B. 

B was of the opinion that, based on the separate agreement, A’s liability for the loss was more extensive than that based on the IT2010 General Terms and Conditions. A settlement was reached in the matter after negotiations, and we compensated the agreed part of the loss, less the deductible.

Example: Cash system error 

Company A delivered a cash system to customer B. Due to an error in the system, some of the products scanned at the cash register were not debited from buyers. Because of this, B suffered a financial loss in the form of uncharged prices. We compensated the loss, minus the deductible.  

Professional Indemnity Insurance for construction supervisors

Professional Indemnity Insurance for construction supervisors covers losses or damage related to technical supervision in the construction sector. The insurance covers losses and damage which are a consequence of an error in building work supervision.  

Example: Supervision of a balcony renovation

A construction supervisor had supervised a balcony renovation for a housing company and approved the substandard work of the contractor as accepted in its entirety. The customer had paid the last instalments to the contractor, who was declared bankrupt before the errors and deficiencies for which they were responsible were rectified. The supervisor had made an error in accepting the contractor’s work. Because of the supervisor’s error, the housing company suffered financial losses in the form of the costs of rectifying the error in the work.

We covered the loss from the supervisor’s general liability insurance, minus the deductible. 

Example: Supervision of pipe installation 

A worked as a construction supervisor for a new build project. The contractor had installed drainage pipes contrary to the plan and the instructions. The damage arose in connection with the use of the drains, and the customer incurred loss from rectification in the form of the costs of reinstalling the drainage pipes and other repair costs. The customer claimed compensation both from the contractor who performed the faulty installation and from the supervisor.  

The loss was covered by the contractor’s liability insurance. The loss was not covered by the supervisor’s professional indemnity insurance, as the liability insurance of the contractor who performed the faulty installation covered the loss. 

Cyber-insurance

In the course of their work, consultants frequently deal with clients’ confidential information. In the event of a data breach, both the company’s own data and confidential information of client companies, such as customer data, are at risk. The work of IT consultants, for example, requires the proficient use of different software and technologies.    

Cyber-insurance covers financial loss from the interruption of business which may arise, for example, from a computer break-in, a virus, denial-of-service attack or malware. In addition, the insurance covers the investigation of the reasons for the computer break-in and the costs of software recovery. The insurance also covers the use of a communications agency in connection with a coverable loss event in the face of a potential risk to reputation, and the costs arising from the customer’s information obligation pursuant to the EU General Data Protection Regulation.  

Cyber-insurance also covers financial loss to another party as a result of a data security breach which is not connected to bodily injury or material damage. In a data breach, data or systems owned by another party are often at risk. Such data includes customer data, which may be lost or fall into the wrong hands.  

Example: Data phishing with an ad 

An employee clicks on an advertisement which was actually a phishing message. Clicking on the message installed a so-called Cryptolocker programme in the network , which locked over 72,000 files. The policyholder incurred expenses from removing the malware and recovering the files.

These expenses were covered by cyber-insurance. 

Example: Denial of service attack 

A company’s information system was under an extensive denial of service attack that paralysed its business for several days. Expert services included in the cyber-insurance were able to stop the attack, and the insurance compensated the profit loss caused by the business interruption.  

Insurance for business interruption due to disability

In the consulting industry, employees and their expertise are an important part of the company’s success. Business continuity may be threatened if a key employee is unable to work due to an illness or accident. In such situations, finding a replacement may be difficult or impossible, particularly if the consultancy is based on a longstanding client relationship.  

On the other hand, even if a replacement can be found, hiring one may mean significant additional expenses that a small company may not necessarily be able to afford. 

Insurance for business interruption due to disability prepares for situations where your company’s business is interrupted if a key employee is unable to work due to an illness or accident. The insurance covers profits lost by the company and the costs of hiring a new replacement. 

Medical expenses and YEL pension insurance

 
Besides business continuity, it’s a good idea to think about your own and your employees’ health. Most consultants spend long hours in desk work seated in the same position, often without paying attention to their posture. Sitting with poor posture can eventually lead to musculoskeletal disorders. In 2020, they were the most common reason for new periods of receiving sickness allowance among employees. 

In fast-paced work with many client companies, mental symptoms are also possible after a while. Although musculoskeletal disorders were the most common reason for new periods of receiving sickness allowance in 2020, mental disorders were the most common reason for paying compensation for sickness absences. (Source: Kela) 

In the event of sick leave, the consulting entrepreneur can apply for a daily allowance from Kela. With YEL insurance, the entrepreneur is entitled to the allowance even after just one day of illness. The amount of the allowance depends on the earned income specified for the YEL insurance. In addition, the consulting entrepreneur can protect their own and their employees’ health with medical expenses insurance, which covers the treatment and examination costs of illnesses and accidents. 

Consulting entrepreneur – ask for an insurance offer 

Whether you are a new or experienced consulting industry entrepreneur, we are always ready to help you identify and select the right insurance for you. Contact us using the request for offer form below, and our experts will help you find the most suitable insurance for your consulting business. 

The insurer is Pohjola Insurance. The losses will be covered in accordance with the law and the insurance terms and conditions. TyEL and YEL insurance is issued by Ilmarinen Mutual Pension Insurance Company.