Professional indemnity insurance for sole practitioner accountants

“Risk is very much part and parcel of everyday life and comes with running a business. The ability to understand, manage, and mitigate risk is crucial to long-term success." Alistair Fraser, CEO, Commercial & Corporate, Marsh UK.

We’re here to help you better understand the risks you face as a chartered accountant, whether you operate as a small practice or you’re working as a sole practitioner – and what you can do to mitigate risk. 

Whether your accountancy firm is relatively new or well-established, managing risk and preparing for challenging situations is the key to avoiding potential claims and being able to respond if the unexpected happens.

Using a broker to arrange your business insurance is essential, as not all professional indemnity insurance is the same. A specialist PI insurance broker knows how to get you the best terms for your commercial insurance, based on your individual needs.

PI insurance for sole practitioner accountants or small practices

Commercial insurance such as professional indemnity (PI) insurance plays an important part in protecting you from the everyday risks you face.

As a chartered accountant, you strive to deliver a professional service for your clients without any mistakes. Unfortunately, this isn’t always the case, and you may need to defend yourself if a client alleges you are responsible for causing them financial loss due to:

• A breach of a professional duty of care or unintentional breach of contract.
• Unintentional breach of confidentiality or copyright.
• Loss of documents or data.

The ICAEW requires that members hold PI insurance, however not all PI insurance is the same. It’s important to arrange a policy that provides the right protection for your specific business activities.

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.

Get a quote online, and arrange your professional indemnity insurance at a time that suits you. You can also contact our dedicated team of PI insurance experts who currently manage more than 4,300 PI policies on behalf of members. Find out more about the ICAEW PI scheme here.

Cyber liability insurance for a chartered accountant

Your reliance on technology will have undoubtedly grown in recent years: from the increased use of mobiles and the web to collecting and storing client data. However, with this increased use of technology, your business faces a higher risk of cyber-threats. It's essential to stay vigilant and have the right cyber liability insurance in place that offers the necessary protection.

Risk management for chartered accountants

Managing risk effectively in your small accountancy business could include:

• Arranging reliable back-up.
  
  Do you have someone with the skills, care and diligence to look after your affairs during a prolonged period of absence? Putting a plan in place before any unforeseen event occurs should provide you with peace of mind and help reassure clients.


• Reviewing your terms of business regularly.
  
  Ensure your standard terms of business is an up-to-date reflection of how you work with clients and adhere to this unless agreed in writing otherwise.


• Being aware of conflicts of interest.
  
  This is especially important for chartered accountants involved in managing family or group businesses.


• Seeking out professional advice.
  
  Having access to specialist tax advice, and legal expenses guidance can 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 your own. Of course, a candidate must be qualified, but by focusing on specific core ideas, you’ll be able to build a team comprising 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 need more specific protection.


• Complex work.
  
  Although ICAEW mandates minimum limits, more complex work often comes with more risk.


• Motivating your workforce.
  
  A happy workforce is generally more productive. Employee benefits schemes aren't just for corporate giants, and it doesn't have to be too expensive to manage.

If you have plans to grow or diversify your business activities, ask your broker to help you manage risk and ensure you remain protected.

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 decide 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.
  
  Services deemed higher risk by insurers, for example, insolvency, mergers and acquisitions, and corporate finance – can make the process of finding cover longer, and more difficult. If you’re considering providing these services, prepare for higher premiums, but also the potential for insurers to restrict cover, or refuse cover altogether.
  
  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 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.

When to buy run-off professional indemnity insurance

To maintain protection for your business when you or your employees stop trading, you’ll need to have a professional indemnity (PI) run-off insurance policy in place. Without run-off insurance, any claims brought against you for work carried out in the past will not be insured.

Run-off insurance provides the cover of a PI insurance policy. This covers legal costs and expenses involved in defending a claim, as well as compensation payable if you’re found to be responsible for causing financial loss to your client because of negligent advice, errors or omissions in your service.

The key difference with a run-off policy is the endorsement that is added by your insurer stating that cover will not be provided for any service or work provided after the date you cease trading. Typically, run-off policies are maintained annually for up to six years. The ICAEW recommends that members hold run-off insurance for six years, but requires a minimum of just two years.

Retirement is a typical reason accountants might purchase run-off insurance. This is particularly popular with smaller firms or sole practitioners. Occasionally, larger accountancy firms may be sold or taken on by another firm or individual who maintains the PI cover, but this is not always the case. For example, the new owner may not wish to be responsible for the legacy liabilities. Conversely, the departing owner may not want to be responsible for their liabilities being trusted to someone else.

In both scenarios, it's necessary to keep a run-off policy in force after retirement to cover any claims that may arise in the future.

If you’re a member of the ICAEW, you can get a quick quote for PI insurance online. Alternatively, read more about the ICAEW members’ PI scheme. If you would like to discuss professional indemnity insurance with an expert in PI for accountants, contact Marsh Commercial by email or call us on 0330 1623 862.