For compensation consultants asked for $5M by a board, health system or deal team, the limit is usually met by stacking a $1M or $2M primary Professional Liability (E&O) policy with excess policies that pay after it.
The short answer
- A compensation consultant asked for $5M usually needs several policy layers, because $5M is a high limit for this work that most often comes up with board pay work, mergers and very large workforces.
- Those layers are often a $1M or $2M primary policy plus one or more follow-form excess layers (layers that use the same terms as the primary). A single $5M primary policy is offered less often.
- $5M is very rare online and almost always needs a broker. A broker may approach excess and surplus lines insurers, which cover risks standard insurers often decline. Morrow can help you find it.
What does a $5M requirement mean for compensation consultants?
Professional Liability (E&O, short for Errors and Omissions) covers claims that your advice caused a client a financial loss. A $5M clause often looks like this:
Illustrative contract wording
Advisor shall maintain Professional Liability (Errors and Omissions) insurance covering executive compensation and transaction-related services, with limits of not less than $5,000,000 per claim and $5,000,000 in the annual aggregate. Limits may be satisfied by a combination of primary and excess policies. If written on a claims-made basis, coverage shall be maintained for five (5) years after completion of services.
Illustrative example only. Actual contract wording varies.
- Per claim and aggregate: the most paid for one claim, and for all claims in a policy year. See how limits are written.
- Primary plus excess: this clause allows stacked policies. If yours is silent, confirm with the client that primary plus follow-form excess meets the clause.
- Claims-made: the policy covers claims made and reported while it is active, for work done after the retroactive date (the earliest date of work it covers).
- Five years after: you would usually renew every layer for that period, or arrange tail coverage (extra time to report claims after a policy ends) if you close or sell the firm.
Who asks compensation consultants for $5M?
The limit reflects how much money your advice can move, not your firm's size. It usually comes from:
- Compensation committees of large public companies.
- Deal teams in a merger, when you model change-in-control payouts (pay owed to executives when a company is sold) or equity treatment.
- Companies preparing for an IPO (a first public sale of stock) that need a new equity plan.
- Large health systems reviewing physician and executive pay.
- Large HR, benefits or staffing firms that pass $5M down to you.
Compared with $3M for compensation consultants, $5M usually means larger or more excess layers and more underwriter review of deal and board work. If your contract asks for less, see $2M for compensation consultants.
How is $5M built?
A primary policy pays first. An excess policy pays only after the layer below it is used up. "$3M xs $2M" means a $3M layer sitting above the first $2M.
Example A: single policy
Example B: two layers
Example C: three layers
Each excess layer should follow form, meaning it uses the same terms as the primary policy. Every layer should share the same retroactive date, policy period and named insured (the business the policy covers). Compensation consultants often buy a Miscellaneous Professional Liability form (a general form for advice-based services) or one written for HR consultants.
Good to know
Defense costs count. Many Professional Liability policies pay defense costs inside the limit, so legal bills in a long dispute reduce what is left. See defense inside vs. outside the limit.
What will underwriters ask for?
An underwriter decides whether to offer coverage and on what terms.
- How much revenue comes from merger and IPO work, and whether you calculate payouts or only advise on design.
- Whether you report to boards directly, and how you manage conflicts if you sell other services to the same company.
- Whether a second person checks payout models and peer group data before a board votes.
- Whether you give legal, tax or securities opinions, or leave those to the client's advisors.
- Your largest engagements, the $5M contract, loss runs (a report of past claims) and your current policy.
What affects the cost?
- Deal and board work. Merger, equity and senior executive pay advice usually costs more to insure than salary surveys.
- Client payroll size. One formula error across a large workforce adds up fast.
- How the layers are built. The primary layer usually costs the most per $1M of limit, and higher layers usually cost less.
- Claims history and controls. Clean history and written review steps usually help.
- Retention and defense terms. Retention works like a deductible. A higher one usually lowers premium.
Frequently asked questions
Do I need $5M Professional Liability as a compensation consultant?
Only if your contract, board or client requires it, so check the insurance clause first. In a hypothetical case, a change-in-control model leaves out an executive's accelerated equity and the buyer pays far more than planned. Whether it reaches the limit depends on the policy wording.
How do I get from $1M or $2M to $5M Professional Liability?
Request new quotes through Morrow, either a new primary policy at a higher limit or excess layers above a primary. Morrow can ask to keep your retroactive date and prior acts coverage (cover for work done before the new policy starts) where the market allows. Report any possible claim to your current carrier before switching.
Can a commercial umbrella count toward $5M Professional Liability for consultants?
Almost never, because umbrellas usually exclude professional services.
Can my client be an additional insured on Professional Liability?
Usually not. Additional insured status is not standard on Professional Liability. Some clients accept a certificate of insurance (a document that summarizes your coverage) instead, but check your contract. It can list each layer, its limit and its policy period.
Looking for $5M in Professional Liability? Morrow can help.
Send us the insurance requirement from your contract and your current policy. Morrow can review both and request quotes for a $5M primary policy or a primary policy with excess layers.
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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.