Professional Indemnity Insurance for Accountants

Here are four scenarios where PI Insurance has

5. ICAS — the Scotland position

The ICAEW (external link) is the only body in the UK that publishes minimum terms for the Professional Indemnity coverage it requires its chartered members to have. Hiscox has a Chartered Accountant policy wording that meets all the ICAEW minimum terms requirements. Other professional bodies that ask for their members to have PI cover include: Hiscox accountants’ insurance is comprehensive and flexible, so you can tailor the cover to meet the requirements of your professional body. “With 20 years in the industry, I am a professional indemnity insurance specialist. I champion keeping our policy wordings as ‘plain English’ as possible and stamping out unnecessary jargon.

9.1 The IFA minimum

Clarity is key when talking to customers about their professional indemnity cover.” - Liam Barry, PI Underwriting Manager (Emerging and Traditional) Understand why this cover is necessary and what protection it provides Having worked as a professional indemnity insurance broker for many years, I know there is one very important part of insurance cover that many clients are unfamiliar with – run-off insurance. Run-off insurance is professional indemnity insurance cover provided for the past liabilities of a business once it has ceased trading. This is to protect both the business and its clients from financial losses suffered as a result of professional negligence. Many regulated professionals are required to obtain run-off insurance and maintain cover for a minimum period as specified by their regulatory body. For professionals like accountants, who are regulated, run-off cover is mandatory and ACCA requires their members have a minimum of six years’ cover.

IT and Cyber insurance for Accountants

Professional indemnity insurance policies operate on a ‘claims made’ basis – this means that for the policy to respond there needs to be cover in place at the time the claim is made, rather than when the negligence occurred. So, for example, if a client makes a claim against you tomorrow for alleged negligent advice given in 2015, then it will be the policy you currently have in place which will respond to the claim. It is therefore important not only to maintain cover but to also maintain an adequate level of cover once you have ceased trading. The time limit for professional negligence claims is outlined in the Limitation Act 1980. In general, a claimant has six years to make a claim against you from the date they have suffered the financial loss. helped an SME accountant faced with a claim…

The Importance of PII for Accountants

As a seller, by maintaining your own run-off insurance you can be assured that you have cover for your past liabilities and are not dependent on someone else maintaining this cover for you. Compensation can still be recoverable for negligence against a firm that has become insolvent. The Third Party (Rights Against Insurers) Act 2010 came into force in August 2016. It allows for a claimant to pursue a claim against a firm or their insurer without having to resurrect the (insolvent) insured firm. Claims that arise after a practice has been placed into run-off are no different to claims that could have arisen when the practice was still trading – it is just a matter of when the negligence/loss is discovered.

Professional indemnity insurance

This could be many years after the initial work was undertaken or the advice given. As explained above, there is still a reasonable period of time after negligence is discovered in which a claim can be brought, regardless of whether a firm is still trading. Remember, if there is no Professional Indemnity cover in place when the claim is first made, then you will have no alternative other than to fund any legal advice, defence costs or losses incurred yourself - which can not only be expensive but time consuming and very stressful. In partnership with Lockton, ACCA is running a series of webinars in 2025 on risk. The first one on anti-money laundering and the risk to your insurance cover is now available on demand.

5.3 Scottish-law differences that matter for PI

If you have any questions about professional indemnity insurance, please contact your Lockton Account Manager for further advice or email accountants@uk.lockton.com. It’s not easy running an SME in 2023. You know it, we know it, and accountancy business owners certainly know it. From rising costs to fierce competition for customers, it’s no wonder insurance sometimes gets pushed to the bottom of the pile. But every SME needs a safety net. An accountancy firm fails to comply with HMRC

• Check if your business needs Professional Indemnity insurance as mandated by your professional body.
• Review client contracts, as they often specify minimum insurance levels for Public Liability.
• Assess the value of assets and potential business interruption to determine adequate property insurance.
• Consider Cyber Liability insurance, increasingly required in contracts for handling client data.

filing deadlines resulting in penalties for the client.

An accountant fails to warn a client that the transfer of shares

Importance of run-off cover

Hiscox professional indemnity insurance is relevant to many complaints an accountant can face. It can help to cover allegations of negligence, accidental breach of confidence and giving poor business advice. Should you provide good-faith tax guidance which turns out to be misplaced, we may help to pay related legal fees and compensation. Likewise, if your cashflow forecasts turn out to be incorrect and a client sues, insurance can help with the aftermath. Our professional indemnity insurance can also be suitable for tax accountants and company registrars as well as auditing and payroll professionals.

1.1 Statutory and quasi-statutory roles

This means a wide range of industry activities, from filing to invoicing, are covered. Every business entity is liable to members of the public for injuries or property damage that might occur because of its activities. Public liability insurance is designed to help absorb the cost of such cases. Many businesses can face public liability claims, even if they aren’t public-facing – for instance, an office sign could fall from a commercial building. However, public liability insurance might be more relevant to businesses with frequent client interactions.

Regulatory setting

The organisations that facilitate the training and qualification of chartered accountants in the UK and globally will set the rules for their members’ professional indemnity requirements, and this will often include minimum limits for members to have in place for their business. The two main bodies for chartered accountants are ACCA and ICAEW. ACCA (external link) is a global organisation for professional accountants. To become a member of the organisation and an ACCA chartered accountant, you must take and pass the ACCA Qualification. As a member, you are required to have professional indemnity insurance. prior to the sale of a business will trigger a CGT charge.

• Public Liability insurance is not a legal minimum but is often required for contracts and leases.
• Professional Indemnity insurance is a legal requirement for certain professions like financial advisors.
• Motor insurance is a legal minimum for any company vehicles, with at least third-party cover.
• Product Liability insurance may be required if you manufacture, supply, or repair goods.
• Directors' and Officers' Liability insurance is not legally required but is critical for risk management.

A complex claim as the client may not have warned the accountant of their intentions.

What does ACCA require for PI?

This is known as the primary limitation period. If a claim is made after this period, then it could be time barred. However, in some instances, there is a possibility of bringing a claim after the primary limitation period – this is known as the secondary limitation period and gives an additional three years from the date the claimant first become aware of the negligence. Professional negligence claims usually have a 'longstop' of 15 years. If it is discovered that negligent advice had been provided from a professional over 15 years ago then it may not be a possible to pursue a claim.

A costly miscalculation

There are some exceptions to this rule, for example bet odds comparison sites free if someone has deliberately concealed evidence or relevant facts then an additional six years could be added. If the negligent act involves a minor, then they may also have additional time from when they reach 18 regardless of the 15-year rule. Yes, a claim can still be made against you even if you have ceased trading. Those who operated as a sole practitioner or a partnership may be liable personally for any compensation if found to be negligent. If you traded as a private limited company or a limited liability partnership a claim may still be possible.

Office insurance

This depends on what was agreed between buyer and the seller. It is important that this is discussed and forms part of the sales agreement. It is usual that the past liability is insured by the seller by way of a run-off policy. If you are a buyer then consider whether you want to cover the past liability of a firm where you have had no input in the risk management or work practices. Should a claim come in from work undertaken by this firm after you have purchased it, then it could negatively affect your own insurance policy. An accountancy firm acting as auditors for a client fails to detect fraudulent activity in an investment opportunity.

A complex case as the wrong doer will have

• Failure to display the EL certificate can result in a £1,000 fine.
• Records of EL insurance must be kept for 40 years, as claims can be made long after exposure.
• Even if you are a limited company, inadequate insurance can pierce the corporate veil in cases of negligence.
• Business rates or utility providers may require proof of insurance before providing services.
• Minimum requirements are a baseline; adequate cover should be based on a full risk assessment.
• Online business portals may require uploading insurance certificates to maintain seller status.
• Employee count fluctuations must be reported to your insurer to maintain valid EL cover.

gone out of their way to cover their tracks.

Issues with obtaining PII

Just look at the stats: BIBA data suggests nearly one in five businesses suffer a major disruption every year. For smaller companies, even the slightest mistake or bad luck can leave it struggling to survive. This is why having fit-for-purpose professional indemnity (PI) insurance makes so much sense. With 26% of the annual total insurance claims in the UK relating to professional indemnity issues, it helps accountancy firms manage risk, and ultimately helps protect the business if an error should occur. Whilst it is not a legal requirement for accountants to take out PI insurance, for many accountants (such as members of the ICAEW, ICAS or ACCA) it is a regulatory requirement to buy PI cover that complies with the respective association rules. An accountant uses third-party information to research the latest tax insights.

Customer reviews

These rules can not only set out the limits required, but also mandate the specification of the wording and the Insurers that can be used. For those “unregulated” firms, PI cover is still arguably a business necessity to provide the firm with the requisite legal expertise and financial resources to ensure the stability of their business should the worst happen. With PI cover, mistakes can be sorted out quickly and easily, with minimum disruption and expense. Even if it’s never used, having PI insurance provides reassurance for clients, giving them one more reason to trust an accountant with their finances. Within a heightened regulatory environment, the combination of more intervention and evolving standards means an increase in the number of claims.