In response to the hardening PI insurance market, the Institute of Chartered Accountants (ICAEW) has issued new guidance to member firms about professional indemnity insurance.
Their comments are aimed at ICAEW members, but also apply to any accountancy firm buying PI insurance. Read the summary of their statement ;
'Professional indemnity insurance: Changes in the PI market'
ICAEW’s PII Committee would like to highlight that there has been a hardening of the professional indemnity insurance market over the last 18 months, meaning that firms may find it more challenging (and / or time-consuming) to renew cover than previously. It could also mean that firms find their premiums increase significantly.
Generally, insurers are reviewing more critically the risks they are willing to accept and the price they will set for cover. This may particularly affect firms with a claims / notifications history and / or those involved in ongoing legal action and / or firms engaged in activity which insurers perceive as more high risk (eg, tax mitigation schemes, investment advice, insolvency, M&A, and audit work).
Additionally, COVID-19 may be affecting response times from brokers and insurers, as well as firms’ ability to meet the costs of increased premiums. The ICAEW PII Committee recommends that firms:
- Prepare early for your renewal
- Provide complete and accurate information to insurers at the outset to ensure a smooth renewal or transfer of cover to another insurer. Note that if you are unable to obtain a new policy before your current one expires, your last insurer is required (under the minimum approved wording) to extend cover for an additional 30 days (see clause D3)
- Speak to your broker / insurer about whether alternative payment terms may be available if you are struggling to meet increased premiums. Note that a policy may not be cancelled unless both the insurer and the insured agree mutually in writing to cancel the policy (see minimum approved wording clause C11)
- Ensure you are open and transparent with your insurer / prospective insurer when you take out / renew cover to safeguard the indemnity available for a claim. Firms have a legal obligation to make a fair presentation of the risk on taking out or renewing cover
- Ensure you read and completely understand the terms of your firm’s PII policy. If any points are unclear, clarify these points with your firm’s broker
Disruption to business and the economy caused by COVID-19 is likely to result in an increased number of PII claims against accountants and other professionals. Therefore, members should ensure that they have read and understand completely the terms of their firm’s PII policy. If any points are unclear, firms are advised to clarify these points with the firm’s broker.'
At PIIB, we arrange PI insurance for many accountancy firms across the UK as well as other professions. In our experience those firms with normal risk profiles are less likely to feel the more severe effects of the current ‘hard’ PI insurance market. Firms with adverse risk features such as claims, higher risk activities or exposure to tax schemes will more likely see a rise in their insurance cost this year. For guidance, further information or a quotation, please contact us.