Professional indemnity insurance for small accountancy practices

Professional indemnity (PI) insurance is necessary to comply with ICAEW membership requirements, however there are plenty of important reasons for having cover in place.

Whether your accountancy firm is a new or well-established practice, it will face a variety of everyday risks. Managing these risks and preparing for challenging situations is the key to avoiding potential claims and being able to respond if the unexpected happens.

You should follow ICAEW's guidelines, but some good practice management approaches include:

  • arranging reliable back-up—someone who has the skills, care and diligence to look after your affairs during a prolonged period of absence
  • reviewing your terms of business regularly—and ensuring you use them
  • being aware of conflicts of interest in managing family or group businesses
  • having access to specialist tax advice, and legal expenses guidance can also be invaluable.

Risks associated with growing your small accountancy practice

As your business grows, recruitment, acquisition, and employee challenges also increase. It's essential to be prepared and be able to respond to them.

  • Staff recruitment
    Insurers are keen to avoid a high ratio of unqualified staff versus qualified practitioners. Take written references and provide adequate levels of supervision. Values based recruitment (VBR) is an approach which will help you find people whose personal values match with those of your organisation. Of course, a candidate must be qualified, but by focusing on specific core ideas, companies are able to build a team comprised of the “right” people for the job.
  • Acquisition
    By taking on another firm, you might also take on past liabilities from their predecessors and previous partners. They may have been involved in higher-risk work, and any claims arising after the takeover could fall on you unless you've made other arrangements.
  • External appointments
    Positions such as directorships and trusteeships are covered as standard in most cases. However, not all activities are automatically protected, so it pays to carry out regular reviews to understand if you or the entity needs more specific protection.
  • Complex work
    Although ICAEW mandates minimum limits, more complex work might increase your business's risks.
  • Motivating your workforce
    A happy workforce is more productive. Employee benefits schemes aren't just for corporate giants, and it doesn't have to be too expensive to manage.

When business expansion includes new service options

If you're planning to expand into new areas, you might find your clients require a wider range of services over time. There are a few things to consider:

  • Specialist support
    If there are areas in which you work infrequently or haven't provided services before, take stock and think if they're right for you. It might be that using a specialist consultant or referring the work is better for your client.
  • Be aware of higher risk areas of work
    For example, insolvency, mergers and acquisitions, and corporate finance where insurers may charge higher premiums, restrict cover, or refuse to offer cover altogether, making your insurer selection smaller and in turn making it a longer process to find cover. Specialist taxation work (beyond standard audit, accountancy and compliance taxation) such as taxation consultancy and tax mitigation fall into this category. Similarly, if you consider taking on probate and estate work, be aware they are services also associated with a higher risk of negligence claims.
  • Arrange a Designated Professional Body (DPB) licence
    This enables you to support your clients with other financial matters, particularly investments, pensions and fund management. You'll need higher cover limits, over £1 million, and some insurers will not provide cover for firms. Those that do, commonly charge higher premiums, increase policy excesses and restrict or aggregate cover limits.

Protect against the unexpected

Cyber-security risks such as phishing and scams present increasingly serious risks—now more than ever. The most significant vulnerability can come in the unlikeliest places, such as email. Make sure you have robust security systems and protection, including cyber insurance. Economic or trade sanctions may prohibit the provision of some services. Screening against watch-lists for countries, companies, people or industries becomes vital to comply with criminal and civil laws. Be aware that your insurers might be prohibited from responding to claims involving sanctioned regimes.

When things go wrong

In any business, mistakes happen, but knowing what to do when things go wrong and having professional indemnity insurance in place to protect your reputation will help give you valuable peace of mind. Your overriding need should be to protect your reputation, promote your business's goodwill, and mitigate, minimise, or avert any allegation, claim or loss.
When dealing with a claim, there are two key aspects: the notification process and any relevant special conditions. Swift professional guidance is invaluable to steer you through the process. When it comes to notifying a claim or a potential claim, the golden rule is to speak to your broker, even if you don’t think a claim will arise, early notification is key.

The ICAEW members’ professional indemnity insurance scheme

Did you know there’s a PI insurance scheme designed especially for ICAEW members? As well as meeting the minimum requirements set out by the ICAEW, the scheme also provides enhanced benefits. Marsh Commercial currently manages more than 4,300 PI policies on behalf of members. We even have a dedicated team who focuses on delivering excellent customer service for ICAEW members. Find out more about the ICAEW PI scheme here.

Are you thinking of selling or planning your retirement?

If your firm stops practising, you will have continuing liabilities. Professional indemnity insurance is arranged on a 'claims-made' basis. This means the cover is triggered when a claim is made, or a circumstance arises that might give rise to a claim. It does not arise when the negligent act or omission occurs.

If another firm is acquiring the business, they may take responsibility for those continuing liabilities—or they may leave them with you. If no one else is insuring them, ICAEW requires you to arrange 'run-off' cover. Having a long period policy in place when your firm ceases trading can give you peace of mind.

If you would like to discuss professional indemnity insurance for sole practitioners or for your small practice, contact Marsh Commercial by email or on 0345 894 4684.

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