There’s a certain amount of risk in everything but when it comes to offering professional advice or services to a client, the risk can be much greater than normal and the consequences more severe than you might ever have imagined.
Unfortunately, with the nature of their business, the level and complexity of data they deal with and the high chance of miscalculations, accountants may be more susceptible than most.
However, professional indemnity insurance can mitigate these risks. This article outlines the three most important things to consider, if you’re considering taking out professional indemnity insurance.
Firstly, what is professional indemnity insurance?
Professional indemnity insurance is popular amongst accountants (and surveyors, architects and solicitors) as it provides cover if they should become liable due to an omission or error in any advice or service they provided in a professional capacity. Professional indemnity insurance is especially important if their client suffers a financial loss as a result.
For many if not all accountants, professional indemnity insurance is an essential part of their business risk management strategy. In fact, some accountancy professional bodies even require you to hold professional indemnity insurance cover if you want to be a member.
What are accountants covered for with their professional indemnity insurance?
As mentioned above, accountants are perhaps more susceptible than most to errors and miscalculations. If this should happen, clients will almost certainly look to you for reimbursement or even instigate legal proceedings. Whatever the reason and however a client wishes to resolve it, you will most likely end up having to make a professional indemnity claim to cover:
• Negligence, mistakes, errors or bad advice
• Misplacement of documents or confidential material
• Infringement of intellectual property rights
• Defamation, libel or slander of a client, their character or their company
• Intentional or accidental sharing of confidential information
• Unintentional breach of confidence
• Financial loss as a result of any of the above
Top Tip: If at any stage you cease practice, make sure you have run off professional indemnity insurance in place to protect you against future claims relating to your years of practice.
Is it compulsory for accountants to have professional indemnity insurance?
No… but most professional accounting bodies require their members to have some level of professional indemnity cover. For instance, the ACCA (Association of Chartered Certified Accountants) requires “all holders of practicing certificates, insolvency licenses, firms’ auditing certificates and firms’ investment business certificates (Ireland) to obtain a minimum level of insurance cover”.
The exact level of insurance cover is calculated in relation to their annual fee income:
• 5 times the total income up to £200,000 and 25 times the largest fee raised during the previous accounting year.
• The aggregate of £300,000 and the total income of the firm up to £700,000 and 25 times the largest fee raised during the previous accounting year.
• A limit of indemnity in respect of each and every claim must be the greatest of £1 million and 25 times the largest fee raised during the previous accounting year for those taking in over £700,000 within that year.
Top Tip: When renewing professional indemnity insurance, make sure to collect all relevant information and consider all changes that you need, at least a month in advance of your renewal date.
What level of cover do I need?
If you’ve read the above and think you’re ready to take out a professional indemnity insurance policy, you should consider what you need to protect before you finally proceed. For example, look at whether you deal with confidential information or not and then ask yourself whether you’re at risk of losing essential client documents or other data.
Next, you’ll need to consider the policy defense limit and whether or not it will cover your individual needs, as some professional accountant associations require a minimum level of professional indemnity cover. For example, the Certified Public Accountants Association has a minimum limit of two and a half times the income of a practice for its last financial year.
Finally, remember that all professional indemnity insurers require professionals to pay an excess (the amount of money that you agree to pay towards covering the costs of a claim yourself). However, most will keep this amount relatively low in order to prevent you from experiencing financial difficulties.
Top Tip: You can reduce your professional indemnity insurance premium by actually selecting a higher policy excess (the amount you agree to pay in the event of a claim on your professional indemnity insurance policy).
Let us help you before you help them
Accountancy is a great career but not without its risks. Accountant insurance is a great way to get peace of mind and mitigate some of these risks before you help your clients. To help you make the best decision for you, OBF Insurance Group are brokers with huge experience in personal indemnity insurance.
If you’re looking for the right financial protection for you, someone to be on your side or just someone to give you the best possible advice, our team of experts is here to help you protect and improve your quality of life, by ensuring you always have the right insurance and a sound financial plan. So don’t delay, contact us on +353 (1) 660 1033 today.