$1M Professional Liability (E&O) Insurance for Compensation Consultants

For compensation consultants whose client wants proof of $1M before a pay study starts: your Professional Liability (E&O) policy needs a $1M limit, and the contract says whether that is per claim, yearly, or both.

What does a $1M requirement mean for compensation consultants?

Professional Liability (E&O, short for Errors and Omissions) covers claims that your advice or work, such as a salary survey, pay equity review or incentive plan, caused a client a financial loss. A typical clause looks like this:

• Per claim: the most the policy pays for any one claim. Here, $1M.
• Aggregate: the most the policy pays for all claims in one policy year. Here, $2M. A $1M/$1M policy does not meet the limit part of this clause. A $1M/$2M policy may meet it, but the clause also asks for coverage to be kept for two years after the services end, so check that too.
• Claims-made: the policy covers claims made and reported while it is active, for work done on or after the retroactive date (the earliest date of work the policy covers).
• Covered services: the policy should describe what you actually do.

Who asks compensation consultants for $1M?

Compensation consultants often see a $1M requirement from:

• Mid-sized employers hiring help with salary structures, job leveling or market pricing.
• Nonprofits, schools, health systems and public agencies running pay studies.

Board compensation committees, public companies and large employers may ask for $2M instead, which leaves more room for one large claim. A $1M/$2M policy gives $1M for any one claim and $2M across the year. See $2M Professional Liability for compensation consultants.

How is $1M built?

At $1M, the limit is usually one primary policy (the policy that pays first). It often needs no extra layers. A commercial umbrella almost never covers Professional Liability, so do not count on one (see Does a commercial umbrella cover Professional Liability?).

Compensation consultants often buy a Miscellaneous Professional Liability form, made for service firms with no policy type of their own. Morrow can review a policy with you to check that it lists your real services and reaches back far enough to cover past projects. A client usually cannot be added as an additional insured (a person or company listed on your policy who gets some of its protection). Many accept a certificate of insurance (a one-page proof that you carry the policy) instead. A certificate gives the client no rights under the policy, so check what your contract asks for. A data breach of employee pay data is usually a separate Cyber policy.

What will underwriters ask for?

An underwriter decides whether to offer coverage and on what terms. For compensation consultants, they often ask about:

• Your services and the share of revenue from each: market pricing, pay equity, executive pay, incentive design, job architecture.
• Whether you advise boards or compensation committees, or work on equity or deferred pay plans.
• Whether you give any benefits, retirement plan or investment advice.
• Whether you use written contracts that limit scope and avoid promising outcomes.
• Revenue, largest clients, prior claims and your current retroactive date.

What affects the cost?

• Type of work. Executive pay and board advice may carry more risk in an underwriter's view than broad-based salary studies, which can affect the price.
• Revenue and client size. Larger clients and bigger payrolls can mean larger possible losses.
• Claims history. Past claims can raise the price or narrow options.
• Aggregate and retention. A higher yearly total usually costs more. A higher retention (what you pay on each claim before the policy pays) usually lowers the premium.
• Contracts and controls. Written scopes and data checks may lead underwriters to offer better terms.

Frequently asked questions

Do I need $1M Professional Liability as a compensation consultant?

Yes, if your contract asks for it. Many clients require $1M before a pay study, job leveling or incentive plan project starts, so check the insurance section of the contract first.

I have a $1M/$1M policy and the contract asks for $1M/$2M. What now?

Request new quotes for a $1M/$2M policy through Morrow, keeping your retroactive date and prior acts coverage (coverage for work you did before the new policy starts) where the market allows. Keep your current policy in force until the new one starts. Report anything that could become a claim to your current carrier first.

Is $1M enough if a client asks for $3M or more?

No. A $1M limit does not meet a $3M requirement. Limits of $3M and above are rarely found online, and $5M almost always requires a broker. Morrow can help you find them. See $3M Professional Liability for compensation consultants.

What kinds of claims could a compensation consultant face?

Here are hypothetical examples. A formula error in a bonus plan pays out far more than the client planned. A market study uses the wrong job matches, and the client says it overpaid for years. Many policies may help pay to defend a covered claim, subject to the policy wording and limit.

This article is general information, not legal advice or a coverage determination. Coverage depends on the actual policy wording, carrier underwriting and your contract terms.