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Accountants professional indemnity insurance - it's not all the same

ICAEW members in private practice have an obligation to purchase professional indemnity cover, with a limit of indemnity that depend on the firm's fee income. 

Marsh Commercial has worked closely with ICAEW to build an insurance scheme exclusively available to members. It's been designed in collaboration with a leading UK insurer, specifically to meet the needs and cover the activities of chartered accountancy firms.

One of the biggest benefits of ICAEW's professional indemnity scheme is that it operates as a separate 'market' or 'risk pool', which mean members benefit from a level of insulation against the rising premiums currently affecting the wider market. It's important to know that not all professional indemnity insurance polices are the same. Even where policies are compliant with the ICAEW’s minimum terms, there's lots of variations in cover that can apply and a policy may not be all that it seems at first glance.

To help you navigate your way through purchasing professional indemnity cover, we've given a run down of the key things to consider and the most common differences found in chartered accountants’ professional indemnity policies. 

1. Each and every claim limit versus aggregate limit

The limit of indemnity can apply either to each and every claim or in the aggregate. Each and every claim means that each claim will benefit from the full limit of indemnity, whereas an aggregate limit is the maximum that an insurer will pay in any one period. Always look for an each and every claim limit to ensure that your insurance cannot be exhausted.

  • ICAEW's insurance scheme’s professional indemnity policy is based on an each and every claim limit of indemnity, with no aggregation of claims.

2. Legal defence costs

Policies have cover for 'defence costs' – insurers’ costs in defending a professional indemnity claim against you. But what if someone instead alleges professional misconduct or ICAEW finds it necessary to investigate you? Unless it is tied to a professional indemnity claim, some policies may not provide cover. Always look for a policy that covers legal defence costs.

  • ICAEW's professional indemnity policy includes wider legal defence costs (including ICAEW investigation costs).

3. Civil liability policy wordings

The basis of the policy wording is very important. ICAEW minimum terms require a civil liability wording that not only covers errors and omissions but also other civil liabilities, such as libel and slander. A civil liability wording is defined by its exclusions rather than its inclusions, meaning that if something is not excluded then generally it is deemed to be included. 

We recommend that you read the extensions to cover carefully for additional covers the insurer may give. 

  • ICAEW's insurance scheme policy provides for automatic acquisitions inclusion (up to 10% of fee income/no claims) and external directorships.

4. Loss of documents

A civil liability wording covers loss by the firm of documents belonging to others. Some professional indemnity insurance policies will also cover the firm’s own documents. Because the accountancy profession involves the drafting and storage of documents, cover in many policies may be insufficient to cover the cost of reinstating the documents in the event of a loss. Always check to see if cover extends to documents. 

  • ICAEW's insurance scheme includes specific cover for documents.

5. Claims notification 

Insurance policies will always contain a clause which refers to the notification of claims. Because professional indemnity insurance is offered on a 'claims made' basis, claims must be notified within the policy period and without delay. Failure to notify a claim – or wrongly notifying it to the broker instead of a nominated claims agent - may lead to cover not operating fully. Each insurer handles notification of claims differently. 

  • ICAEW's insurance scheme requires incidents to be notified as soon as reasonably practicable.
  • In addition claims and circumstances to be notified no later than seven days following expiry of the policy period.
  • Notification to Marsh Commercial counts as notification to insurers.

6. Additional claims support 

Insurance policies will pay claims and defence costs, but what about the conduct of the claim? Each insurer handles notification of claims differently. Most policies allow insurers total discretion in handling and settling a claim, and not all provide cover for additional steps the insured makes to minimise the loss or protect their reputation. 

  • ICAEW's insurance scheme provides cover for mitigation costs (costs incurred by the insured to minimise a loss) and public relations costs to protect the firm or member’s reputation.
  • No settlement of professional indemnity insurance claims without Insured’s consent.

7. Retroactive cover 

Professional indemnity insurance is underwritten on a 'claims made' basis rather than a 'claims occurring' basis. This means that a person must hold a valid insurance policy at the time when a claim or complaint is made, irrespective of when the allegedly incorrect advice was given or document drafted. 

Insurers will apply a retroactive date to a policy which stipulates how far back advice can be given or documents drafted in order for a claim to be valid under the policy.

Example: If a firm commenced trading in January 2020, an insurer would most likely apply a retroactive date of the 1 January 2020. This means that if a claim occurs in March 2020 for advice that was given prior to the 1 January 2020 in previous practices, this would not be covered as it precedes the retroactive date of the policy. 

  • ICAEW's insurance scheme offers unlimited retroactive cover as standard for all activities.

8. Run off cover

It's worth remembering that all members will at some time stop accounting activity and this could happen at any time due to an unforeseen factor such as ill health or other sudden change of circumstances. 

Run off cover provides continuing protection for members who have ceased accounting activity but still have a potential liability for work they have done in the past, which can last for the lifetime of an accountant or firm. ICAEW requires two years’ of run off cover, but limitation provisions can provide for much longer periods of liability, during which time a claim may be made. There is no requirement for insurers to grant this. This means some firms must apply each year for cover, but cannot be certain of the terms under which it might be provided.

  • ICAEW's insurance scheme offers six-year protection for members who have ceased practice, with the premium calculated as a percentage of the average annual premium over the preceding three years.

9. Breach of or non-compliance with a policy condition

In this event an insurer can recover from the insured any amount which, in the insurer’s reasonable opinion, would not have been payable by them in the absence of such breach. 

  • ICAEW's insurance scheme offers 'innocent failure to give fair presentation' protection.

10. How secure is your insurer?

It's important to know that ICAEW does not guarantee the solvency of any insurer. While incidences of insurer insolvency are rare, in that event the member is reliant on protections from the UK’s Financial Services Compensation Scheme, or the equivalent in another country for certain overseas insurers.

  • ICAEW's insurance scheme offers you the opportunity to cancel and replace your policy should your insurer’s credit rating fall below A-.

The need for ICAEW members to demonstrate high professional standards has never been greater and is part of ICAEW’s continued commitment to quality.

If you would like to get a professional indemnity quote from ICAEW's scheme or receive advice on your current policy, please get in touch with our dedicated ICAEW team on 0345 894 4684 or email ICAEWenquiries@marshcommercial.co.uk.