As a chartered or certified accountant or a member of a professional accountancy group, you may be aware of the importance of professional indemnity insurance (PII). However, it is important to note that there are additional requirements beyond simply having insurance coverage.
For example, there is a minimum amount of coverage specified in the professional indemnity insurance regulations for accountants. Additionally, there may be a maximum excess that you are required to carry. Furthermore, it is important to note that you must maintain your insurance coverage for a specific number of years.
Failing to meet these requirements can result in serious consequences for your business, including financial penalties, loss of membership in professional organizations, and damage to your professional reputation. Therefore, it is crucial to thoroughly research the insurance requirements and ensure that you are in compliance with all regulations.
Professional indemnity insurance can be confusing, but as a chartered accountant, it’s crucial to understand the terminology. First and foremost, it’s important to ensure that your coverage is issued by a participating insurer. This guarantees that it meets the minimum standards of your accountancy body’s authorized wording. You can check if your insurance is included on the list by clicking here. (If you purchased your coverage through us, rest assured that it meets these requirements.)
It’s worth noting that all of the institute-approved policy wordings are essentially the same, regardless of the underwriter. Any modifications made by the insurer must be clearly outlined in a “difference in conditions” clause.
When it comes to coverage levels, the rules are straightforward. Your professional liability insurance must be at least 2.5 times your firm’s gross fee income from the previous fiscal year, with a minimum of £100,000 in coverage. If your company’s gross revenue exceeds £600,000, the minimum coverage jumps to £1.5 million. Remember, having adequate coverage is crucial in protecting yourself and your clients in the event of a claim.
If you are involved in insurance distribution activities, you may notice a slight change in the structure. Additionally, the ICAEW provides guidelines in euros, requiring a minimum of €1.2 million for each claim and a total of €1.8 million for the entire year.
It’s important to consider the excess as well. When it comes to the criteria for professional indemnity insurance for accountants, a maximum excess is significant. In case of a claim, you are required to pay the excess.
Accountants play a critical role in managing the financial affairs of individuals and businesses. However, their work can also expose them to a range of risks and liabilities, including errors, omissions, and other professional mishaps. That’s why it’s essential for accountants to have appropriate insurance coverage to protect themselves and their clients. Whether you’re an individual accountant or running an accounting firm, having accounting insurance is a smart and necessary investment.
Sole proprietors have a maximum excess of £30,000. Corporate practices have a maximum excess of £30,000 or the entire sum acknowledged by the principal as a legally binding personal duty (but not more than £30,000 for any one principal). For partnerships, the maximum excess is £30,000 multiplied by the number of principals.
Additionally, ensure that your policy has at least six years of retroactive coverage, also known as backdated coverage in the insurance industry. Backdating the coverage to the start of your profession is recommended if your business has not been operating for at least six years.
Lastly, when you decide to retire, you will need to obtain run-off insurance for at least two years, though six years is recommended to be cautious. This is mandated by accountants’ professional indemnity insurance regulations.
Run-off insurance covers claims filed against you for work you performed while your business was in operation but before you stopped conducting business. In other words, run-off insurance pays for the liability for your work even while your organization is not operating.
If you are unsure whether your current policy fulfils all of these requirements, contact a qualified insurance broker for assistance. They can look into it for you and, if necessary, will help you access the coverage you need.