Accountants were one of the first professions to make professional indemnity insurance compulsory. The ICAEW and ACCA, along with CIMA, CIOT and AAT all have their own requirements for their members which dictate the minimum levels of cover firms must carry.
The marketplace for Accountants Professional Indemnity
Accountants' professional indemnity insurance is estimated to be worth in the region of £100 million of premium income to the insurance market. This is paid for by the 15,000 firms practising in the UK. Firms vary dramatically in size – from sole practitioners through to international practices.
What work is considered high risk?
Taxation covers a wide area of work and is the number one cause of all professional indemnity claims against accountants. An estimated 70% of all claims relate to tax issues.
The list below gives an indication of where the majority of accountants professional indemnity claims come from:
- Low risk General accountancy work, personal tax returns, book keeping
- Medium risk Insolvency, company tax, payroll, audit
- High risk Corporate finance, financial advice, trusts, wills, tax schemes, mergers, acquisitions
Accountants can now undertake probate work. Probate has traditionally been a major cause of professional negligence claims against the legal profession and specialist advice should be sought by accountants who are now undertaking or who are considering adding probate to their range of services.
The Assigned Risks Pool
The Assigned Risks Pool (ARP) is a facility put in place by the Institute of Chartered Accountants to provide temporary cover for their members firms who are unable to secure professional indemnity insurance in the open market. There could be a variety of reasons why a firm is unable to obtain PI insurance. It will normally be because they have become a 'distressed risk' due to claims problems and no insurance company wants to insure them.
We assist accountancy firms who have found it necessary to enter the ARP and are now looking to return to find professional indemnity insurance in the open market.
Examples of claims against Accountants
There are many different scenarios where an accountancy firm can find themselves needing to claim on their professional indemnity insurance. Some are obvious but others are not, so here are a few real examples;
A firm of independent accountants were the auditors to an import company. The company was providing false information for the purpose of raising money from banks. A fraud was committed and the banks sued the auditors for failing to detect the fraud. Claim settled £ 10 million
An accountant failed to inform their client that their income had exceeded the VAT threshold and they should therefore register for VAT. As a result the client claimed against the accountant for the eventual liability. Claim settled £ 17,000
A client purchased a company which turned out to be a bad investment. They claimed their accountants had been involved in the due diligence process and failed to warn them of certain fundamental issues. Claim settled £ 182,000
An accountancy firm was recommending a local firm of independent financial advisers (IFA) to their clients, for which they were receiving referral commissions. The IFA went into liquidation and it soon became apparent that poor product advice had been given. Various clients then claimed against the accountant for having referred them to the IFA. Claim settled £ 352,000
How is the premium calculated?
The rating of an accountancy firm or any professional indemnity risk is a complex process. Underwriters need to be highly skilled and require a significant amount of information to enable them to provide a quotation which accurately reflects the risk they are pricing. Premiums are calculated based on many factors which will include:
- The claims history
- Categories of work undertaken
- The number of partners or directors to staff ratios
- Firm’s fee income
To assess the risk the underwriter will require a fully completed proposal form which they will consider in detail. They will also look at the firm’s website or they may even look deeper online into a firm’s background.
Create the right impression
Risk presentation is more important that you might think. The underwriter is assessing the professionalism and quality of your firm and if the information is badly presented, it may influence their judgement and the premium they offer or they may even decline to quote.
If we arrange your professional indemnity insurance, you are safe in the knowledge that we only place our clients with A rated insurance companies. This ensures we deliver long term insurance stability and reliability, as well as value.
Buying online is quick and simple with our quote and buy system that offers competitive premiums with the major insurers. Some accountants will be able to obtain very competitive quotations using our on line system but this typically works best for low risk accountants with a fee income up to £200,000. If your income exceeds this or your risk is more complex (claims, tax schemes etc) you'll need our broking service. Read our guide Why You Need an Insurance Broker.
Many accountancy firms use us to arrange their professional indemnity insurance. Our specialist knowledge and expertise is in demand and we have presented at numerous conferences and webinars for the ICAEW, ACCA, SWAT, UK 200 Group, CharterGroup and 2020 Innovation.
With over 30 years market experience we have the level of understanding necessary to represent your firm professionally and confidently in discussions and negotiations with Insurers. Many accountancy and insolvency firms rely on us to arrange robust PI insurance to protect their businesses and their hard earned reputations.
We recognise the role of an accountancy firm has evolved in the last decade and regulatory change has led many firms into new areas of revenue. Our service includes specialist cover and advice for a range of additional services including probate, consultancy and business recovery.
Finally, we are independent and not tied to to any schemes or insurers, so you can be sure that any advice is impartial.