It’s that time of year again, when we naturally reflect on what’s come before and we look ahead to what’s yet to come. It’s therefore only right that we follow suit in a professional capacity and look at how accountants have fared over the past 12 months when considering professional indemnity claims.
We’re pleased to report that the claims arena in 2022 for accountants has been relatively benign. Claim volumes are certainly down. However, in terms of the practice areas where we have seen the most claims, the answer is not drastically different to the previous 3-4 years. The areas that have seen the most claims in 2022 have been:
- General Accountancy
- Transactional/Corporate Finance
However, we’ve seen slightly different features and trends to the underlying claims. There’s been a number of reported claims with a Covid angle. Whether it’s claims being caused by delays, problems caused by homeworking, or from missed deadlines to register PAYE online for Real Time Information (RTI). Given the speed in which these schemes were introduced in a response to the pandemic, it’s not altogether surprising that deadlines were missed.
We’re pleased to report that the latter is unlikely to be a continuing theme moving forward as these types of claims are likely to have worked their way through the system. The former however is likely to continue to play an active part in claims moving forward in 2023, as these types of claim naturally take longer to come to light.
What does 2023 hold?
Curiously, what is to come looks to be a far more interesting topic than looking back. The immediate economic outlook is unfortunately looking to be challenging. You can’t seem to avoid the relentless headlines around the stratospheric rise in inflation.
In times of economic hardship it’s almost inevitable that claim volumes will increase. Due to the pandemic, unique factors in play over the last couple of years have almost certainly made an increase in claims more likely. We can particularly foresee this happening in the liquidation arena going in to 2023 and beyond.
The reasons for this are relatively simple. Firstly, various temporary measures were introduced by the government during the pandemic to ease the various financial pressures. These included, amongst other things, the Corporate Insolvency & Governance Act 2020 (“CIGA”). This effectively placed a moratorium on corporate insolvencies and the restrictions on commercial landlords bringing eviction proceedings.
The insolvency sphere is usually a ripe arena for professional indemnity claims against accountants. The fact that the lifting of the moratorium has occurred is likely to bring with it a raft of insolvency related claims. This can be due to a failure to properly handle the insolvency or from disgruntled creditors of beneficial owners.
The published statistics from the Insolvency Service also lend further weight to this concern. They have reported that between 1 July and 30 September 2022 (Q3 2022), there were 5,595 registered company insolvencies. This is 40% higher than in the same period in 2021. Perhaps even starker is the statistic that tells us that the number of Creditor Voluntary Liquidations (CVLs) remained close to the highest quarterly level since the start of the statistics in 1960.
The Insolvency Service have also reported that one in 213 active companies entered liquidation between 1 October 2021 and 30 September 2022. This was a significant increase on the 12 months ending 30 September 2021.1
Where there are times of intense pressure brought about by economic factors it’s certainly not inconceivable that claims involving fraud elements will increase. This will almost certainly have an impact in the audit arena. This is something that ICAEW members and particularly auditors need to be aware of and ensure that they are not inadvertently caught up in these factors.
In essence, while the day to day realities of the pandemic are starting to recede in our memories, the impacts are still likely to be felt for some time to come. It’s impossible to prevent all claims from arising, but in these conditions it’s important to get the basics right.
Ensure that you’re communicating effectively with your clients. This includes preparing detailed file notes of any discussions and preparing detailed and effective retainer letters. You should also prepare timely bills and respond considerately to any complaints. This will put you in a strong position to face any claim that may be made against you.
Get in touch
If you suspect a claim might be made against you or you’d like any advice regarding your professional indemnity cover, our team is available to help. Contact us on 0330 1734 102.
Liz Norris, Solicitor and Claims Lead, Marsh Commercial.