Risk Management: The Importance of Professional Indemnity (PI) Insurance

As accountants, we sell our knowledge and expertise rather than tangible products. We have an enormous amount of responsibility on our shoulders: the smallest of errors, omissions or oversights can have devastating consequences for our clients.

Mistakes may be unlikely, but solid risk management for accountants is vital. While not a legal requirement, professional indemnity (PI) insurance for accountants is a must – and many professional bodies will insist on it as a membership requirement.

Professional indemnity insurance for accountants protects you against compensation claims from clients – and there are many reasons why these claims can occur. Read on for an overview of PI insurance, the risks it can cover, the benefits of having this cover and the legal and financial implications of failing to insure your practice.

Overview of Professional Indemnity Insurance (PI Insurance)

With PI insurance for accountants, a practice pays an annual premium to cover them against compensation claims for damage or loss from clients or third parties. The insurance covers against compensation claims that are a result of negligent advice or services provided by your practice.

Cover levels differ from insurer to insurer: always compare policies to find the right level of cover for you before you buy. Professional indemnity insurance can cover anything from issues caused by sending sensitive information to the wrong email address or losing client data to making an error in a client’s accounts that results in them losing money – or being investigated and fined.

Accountants need PI insurance to protect them should the worst happen. Insurance will help you to pay any damages or court costs – and having insurance in place will demonstrate to clients that you are serious about doing things right.

Common Risks Faced by Accountants:

Accountants should ensure that they have a solid risk management strategy in place – including PI insurance – to protect against a wide range of risks.

These risks include errors and omissions – such as making unintentional mistakes in audits, tax returns or financial statements. They include negligence claims against a practice which has failed to deliver services or meet professional standards.

As in our example above, they can also include breach of confidentiality, where the accountancy practice accidentally discloses sensitive client information. A further risk is defamation: the possibility of libel or slander claims initiated by either a client or a third party.

It is also possible that work you conduct could result in regulatory investigation – and PI insurance for accountants will cover – either partially or wholly – the costs associated with defending against regulatory claims. Finally, it can also cover claims arising from fraud and dishonesty on the part of employees.

While these occurrences may seem unlikely, the legal and financial implications of not having PI insurance should the worst happen can be devastating.

Legal and Financial Implications of Not Having PI Insurance:

Without PI cover in place, accountants can find themselves struggling to deal with the legal, financial and reputational implications of a claim against them.

These implications include having to fork out for legal costs – and the expense of defending against claims can often be very high. There can be significant out-of-pocket costs required to compensate clients for settlements and damages – as well as the potential for regulatory fines for failing to comply with professional standards.

In some cases, legal proceedings can disrupt day-to-day operations or even require you to cease trading temporarily – and business disruption can be costly. For sole practitioners, financial losses can be even greater because of their personal liability for their work.

Finally, a lack of PI insurance and the consequences described above can cause reputational damage, destroying the trust of existing clients and reducing potential future business opportunities.

Why Join ICPA for PI Support

Struggling to make sense of professional indemnity insurance for accountants? We’re here to help.

Our membership package also includes professional indemnity insurance: cover that is fully ICAEW-compliant and starting at £100,000 of cover, depending on your membership tier. ICPA PI insurance is managed by Rhino Protect (an ICPA sister company) and provided by A- rated insurer, AXA Insurance.

ICPA members have a vast library of resources at their fingertips covering a variety of accountancy-related topics – including PI insurance. They also have access to our technical support services – staffed by highly experienced industry experts – who can advise on anything from

the level of cover needed to the PI claims process, as well as further insurance coverage options, marketing materials and more.

For more on our membership benefits, click here – or contact us for further information.

PI cover may not be a legal requirement for accountants, but failing to have adequate cover in place can have devastating legal, financial and reputational implications. Professional indemnity insurance will protect you should the worst happen, covering your costs and demonstrating to clients that you care about doing the right thing.

If you’re struggling to make sense of PI insurance for accountants – or if you want to enjoy a good level of cover alongside a variety of other benefits for a single monthly fee – join the ICPA today.

Frequently Asked Questions (FAQs)

Is PI Insurance mandatory for accountants in the UK?

PI insurance is not a legal requirement for UK accountants. However, it is recommended to protect you and your practice – and you will find that many industry bodies will not accept you as a member without cover.

What are the financial implications of not having PI Insurance?

A failure to have PI cover in place could have significant financial implications – including the need to pay legal costs, settlements, damages and regulatory fines.

Can PI Insurance help with legal fees and settlements?

In the event that a court case is brought against you by a client or a third party, PI insurance can cover your legal fees. It can also pay for any settlements or damages, so you avoid being left out of pocket.

Are there any exclusions in PI Insurance policies?

As with every type of insurance policy, professional indemnity policies do have exclusions – and these may vary from policy to policy. Generally, there will be a maximum payment limit in the event of a claim (the Limit of Indemnity). They will also generally exclude any losses resulting from radioactive contamination, pollution or war – and may exclude fines, penalties and/or bodily injury.

How does PI Insurance benefit clients of accounting firms?

By taking out PI cover, you will be indicating to your clients that you take a truly professional approach to your work. You will also give them the peace of mind of knowing that you will be able to cover costs should the worst happen.

What should I look for when choosing a PI Insurance policy?

You should check the cover limit of the policy you are considering, as well as checking the small print to see exactly what is covered, and any exclusions.

Can ICPA help me find the right PI Insurance policy?

Yes, we can! We offer a standard level of cover, which varies depending on your membership tier – and this can be increased if required. Our technical support team can talk through your requirements with you to ensure that you receive the level of cover that is right for you and your practice’s needs.