Whether you are starting a new firm or already established, we have a specialist knowledge of the professional indemnity market for Accountants (ICAEW and ACCA). We offer a range of services to help new and established firms obtain their mandatory cover quickly and at a competitive premium. Our service can include;
- ICAEW and ACCA compliant cover
- Access to a range of 'A' rated insurance companies
- Competitive premiums
- Cover tailored to the requirements of the firm
- Long term expertise within the PI insurance market
- Risk guidance and insights delivered straight to your inbox
Accountants were one of the first professions to make professional indemnity insurance compulsory for regulated firms. Today, it's a large insurance market with many insurers battling for market share and offering accountants policies with subtle but important differences.
It's important to have some understanding of how the market works to be able to make an informed decision on which product is best for your firm.
- Getting a quote for PI Insurance
- How much does it cost?
- What is the insurance 'rate'?
- Examples of claims against Accountants
- The PI insurance market for Accountants
- How many PI insurers are there?
- How is the premium calculated?
- Does creating the right impression really matter?
- Always read the policy
- What are the regulatory requirements
- What work is considered high risk?
- What is the Assigned Risks Pool?
- Trading without PI insurance
Getting a quote for professional indemnity insurance
Professional indemnity insurance for accountants is usually purchased from a specialist broker. A good broker lowers the premium cost as well as providing valuable advice and support throughout the insurance period, especially on claims. We provide this service, so for a quotation or some free advice please complete the Quote Request form or call us on 0345 251 4000.
How much does it cost?
Rates for Accountants PI insurance typically range between .3% and 1.5% of fee income, depending on the usual risk factors and market competition. Rates can also be higher or lower than this depending on the work undertaken, the claims history etc. Rates are discounted for new start firms as there is no history or legacy to insure.
You should also bear in mind that minimum premiums will also apply which can vary considerably between insurers. For example, a minimum premium for an accountant could be £ 100 or £ 1,000 depending on the insurer selected. The minimum premium is the insurance companies starting premium for insuring any risk.
If you stop trading you may be required by your regulator to carry run-off insurance which is usually a multiple of the annual premium.
It's not good practice to buy accountants' professional indemnity insurance as a 'commodity' purchased only on its price. However good the policy wording is, professional indemnity is commercial insurance and coverage disputes can still occur. Use a specialist broker to get some good advice.
What is the insurance 'rate'?
The insurance 'rate' is the percentage of fee income or turnover an underwriter requires to provide the insurance cover. It is decided upon by using the usual risk factors including type of profession (accountancy, architecture, surveyor etc), the breakdown of activities, any prior claims etc. to calculate the 'rate'. This is then applied as a percentage to a firms rateable fee income or turnover. For example, if an underwriter decide they require a rate of 0.5% to insure an accountancy firm with a fee income of £ 500,000, the annual premium quoted will be £ 2,500 (net of insurance tax).
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;
1. Background - 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. Outcome - Claim settled £ 10 million
2. Background - 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. Outcome - Claim settled £ 17,000
3. Background - 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. Outcome - Claim settled £ 182,000
4. Background - 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. Outcome - Claim settled £ 352,000
The Accountants' professional indemnity insurance market
Since 2020 the PI insurance market has hardened, which is a natural occurrence of the global insurance market cycle. This is because of claims outweighing premium incomes, but Covid has also added fuel to the market difficulties. The market is currently showing signs of 'softening' once again.
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 20,000 firms practising in the UK. Firms vary dramatically in size – from sole practitioners through to huge global practices.
How many PI insurers are there?
There are approximately 60 insurers currently underwriting in the market. Market distribution is heavily dominated by brokers who arrange PII on behalf of most firms, with only a relatively small number of firms arranging cover direct with insurers. Like any market, you'll find the good, bad and ugly so it's important to use a good broker to find the cover and premium which best suits your business and your attitude to risk.
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.
Does a good impression really matter?
Risk presentation is more important than 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.
Always read the policy documents!
Reading the insurance policy is an obvious necessity for any policyholder and yet it's surprising how often businesses find that they claim on an insurance policy and then discover the cover isn't as they expected because they didn't read their policy.
Firms must always ensure that they have read and understand completely the terms of their professional indemnity policy. If any points are unclear, you should clarify these points with your broker.
What are the regulatory requirements?
The Institute of Chartered Accountants and the ACCA have specific and strictly enforced rules which dictate the levels of cover their members must carry. Full details of the requirements can be found on their websites or by talking to a specialist broker.
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, bookkeeping
- 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.
What is 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.
Trading without professional indemnity insurance
Not a good idea! Trading without adequate professional indemnity insurance is a serious breach of regulatory requirements as well as poor business practice. A firm will be prevented from trading and closed down if they cannot obtain adequate cover.
This guidance note is intended for information purposes only. Whilst all care has been taken to ensure the accuracy at the time of writing, it is not a reliable substitute for specific insurance advice. For advice about this topic, please contact us or your current brokers. This guidance note shall not be reproduced in any form without our prior permission. © Professional Indemnity Insurance Brokers Ltd