The way that a consulting firm earns profit

[Ian Cai]

Is it a good idea for consulting firms to sell insurance to guarantee the consulting services in case of the failure of the advice? If consulting firms are confident enough in their abilities, they basically don't need to pay back the clients.

[Tom Spencer]

I think this question relates to your previous question, which was "Are consulting firms always reliable?"

As Abby noted:

On 26/03/2017 at 10:25 PM, Abby Chang said:

However, even if the analysis undertaken and recommendations made are sound, this does not guarantee that they will lead to positive financial results for the client.  For example:

1. A client may fail to implement the advice which it has received.
2. Market conditions may change which invalidate previous advice. For example, the CEO resigns, a major competitor enters the market, or a new technology is invented. 
3. The economy may enter a recession.
4. The earth might get hit by an asteroid.
5. Etc.

In other words, consultants can guarantee the quality of their advice, but can't guarantee results. 

Could consulting firms provide insurance?  Theoretically yes, however it would expose consulting firms to additional risks.

Typically consulting fees are paid for a consulting project, and then the project comes to an end. Insurance premiums, on the other hand, are paid on a regular basis, and so a consulting firm would need to remain involved with the client over the longer term in order to monitor the health of its business. Insurance companies are able to provide insurance because they insure a large number of customers, and the risk that each will suffer loss is small.  A consulting firm would not be able to provide insurance at the required scale unless it became a fully fledged insurance company.