Is Professional Indemnity Insurance Compulsory?

What is professional indemnity insurance? Is professional indemnity insurance compulsory for accountants? And how can you find reliable cover for your practice? Find out in our guide…

What Is Professional Indemnity Insurance?

Professional indemnity insurance (PII) is a type of insurance cover designed for professionals who provide advice, services or consultancy to clients. It covers any legal costs and compensation claims that may arise if a client alleges that you have given incorrect advice, made an error or been negligent in your work.

For accountants, it is particularly important: even the smallest of errors could result in serious financial consequences for your clients. Should this happen, PII will safeguard you by covering the cost of defending any claims, as well as paying any damages or settlements awarded.

Without accountancy practice professional indemnity insurance in place, your practice could face severe financial strain, reputational damage, and even the risk of practice closure.

Is Professional Indemnity Insurance Legally Required?

Is professional indemnity insurance compulsory? Not in terms of the law. However, in the UK, many professional bodies – including ICAEW, ACCA and CIMA – stipulate that holding adequate accounting practice insurance is a condition of membership.

Despite PII not being legally required, you will find that your practice is ineligible for membership of most professional bodies without it. Professional indemnity insurance is a vital safeguard that reinforces trust between accountants and their clients, ensuring that you can operate with confidence and protect your practice and its reputation against unforeseen claims.

Benefits of Professional Indemnity Insurance

Even the most experienced accounting professionals can face disputes with clients, whether due to a misunderstanding, an accidental miscalculation or an allegation of incorrect advice. PII protects you against claims like these, ensuring that you are not personally or financially exposed to costly legal battles.

PII also plays a crucial role in maintaining the reputation of accounting practices. A claim against you – whether justified or not – can damage your credibility and trust with clients. Having the right accounting practice professional indemnity insurance in plays shows your commitment to accountability and professionalism, reassuring clients that any issues will be handled fairly and responsibly.

Financial stability is another key benefit of PII cover. Without adequate coverage, the costs of defending and paying a claim could be devastating to your practice. PII cover ensures you can continue operating without the fear of unexpected financial burdens which could risk practice closure.

Frequently Asked Questions

Is professional indemnity insurance legally required for accountants in the UK?

No, professional indemnity insurance is not required by UK law. However, accountants who are members of professional bodies like ICAEW, ACCA or CIMA must hold adequate PII cover as part of their membership requirements.

What does professional indemnity insurance cover?

Professional indemnity insurance covers your practice against claims arising from negligence, omissions or professional errors. It includes legal defence costs, as well as any compensation or damages paid to clients who suffer financial losses as a result of these mistakes.

What happens if I operate without professional indemnity insurance?

Should a claim be made against your practice, you could face significant financial losses without sufficient accounting practice insurance in place. Additionally, members of certain professional bodies could face disciplinary action should they fail to hold this insurance.

How much professional indemnity insurance do I need?

The level of cover needed depends on the size and nature of your practice. Professional bodies generally specify minimum cover limits for their members. These can range from £50,000 to £1 million or more, depending on the scope of your work.

Does professional indemnity insurance cover past work?

Yes. Many policies include a ‘retroactive date’, which covers claims arising from work completed prior to the policy’s start date – providing there was continuous cover in place.

Can I get professional indemnity insurance through ICPA?

Yes, we offer accountancy practice professional indemnity insurance as part of our extensive membership benefits package. This cover is tailored specifically to the accountancy sector, and ensures comprehensive and cost-effective cover.

How much does professional indemnity insurance cost?

Costs vary depending on a number of factors, including the nature of your work, the size of your practice and the level of cover required. For smaller firms, policies can start from a few hundred pounds per year.

How do I make a claim on my professional indemnity insurance?

Should you need to make a claim, notify your insurer immediately and provide all necessary documentation – including details of the claim and any supporting evidence. The insurer will guide you through their claims process.

How to Get Professional Indemnity Insurance with ICPA

With your ICPA membership, enjoying comprehensive accounting practice insurance – including professional indemnity cover – couldn’t be easier. Tailored specifically for accountants and bookkeepers and with various levels of cover available depending on your membership tier, we work with A-rated insurer AXA to give you complete peace of mind.

Once you sign up for ICPA membership, we’ll provide you with everything you need to get started with your PII cover, including detailed guidance to help you through the sign-up process.

While not required by law, professional indemnity cover is invaluable for accountants and their practices. As well as being required as a condition of membership of major professional bodies, it protects you and your practice should something go wrong.  Join the ICPA and benefit from professional indemnity insurance cover as part of our huge range of membership benefits – including TolleyLibrary access, advice lines and much more.  To discover more about how ICPA can benefit your practice, get in touch.