Thu. May 23rd, 2024

Why Accountants Need Professional Indemnity Insurance

Professional indemnity insurance (PII) is an essential investment for accountants, even if it is not legally mandated. Accountants handle complex financial transactions and private information on behalf of their clients, and any workplace incident could have significant financial implications for both the accountant and the client. A PII policy provides coverage for any customer claim, regardless of whether it results from negligence or any other cause, as well as any compensatory damages that the firm is obligated to pay.

The amount of coverage required varies based on the size of the firm and the metrics employed by each trade body. However, all chartered firms must purchase PII to comply with the membership requirements of their respective accountancy trade bodies.

As such, while PII is not legally required for accountants, it is highly recommended as it provides coverage for any customer claim and helps protect the financial stability of the firm.

When purchasing professional indemnity insurance, chartered accountants are advised to consider the following criteria:

  • Retroactive coverage: This covers any claims filed after the policy has expired but which relate to services rendered during the period of coverage. Many accounting bodies require a minimum of six years of retroactive coverage.
  • Run-off coverage: This provides coverage after a business ceases operations, protecting against claims that may arise after a firm closes. Some accounting bodies require members to maintain run-off coverage for a certain period of time after ceasing operations.
  • Excess or deductible: This is the amount that the insured is responsible for paying before the insurance coverage kicks in. The amount can vary depending on the insurer and policy and can affect the overall cost of the policy.
  • Additional coverage options: Chartered accountants may need to consider additional coverage options, such as cyber liability insurance, which can protect against data breaches and other cyber threats, or directors and officers liability insurance, which protects against claims of mismanagement or wrongful acts by company directors and officers.

Professional indemnity insurance (PII) is a critical requirement for chartered accountants in New Zealand. To ensure compliance with their respective accountancy trade bodies, accountants must follow certain criteria when purchasing PII. These criteria include purchasing from a participating insurer that complies with minimum policy wording requirements established by the trade association. Additionally, the insurance coverage must meet certain minimum limits determined by the nature of the accountant’s work and the amount of income received. It is important for chartered accountants to thoroughly research the PII requirements of their trade organization and submit yearly documentation of their PII coverage to maintain their membership. By meeting these criteria, accountants can protect themselves and their clients from potential financial losses resulting from errors or omissions in their work.

As an accountant, it’s important to protect yourself from unforeseen risks that could potentially harm your business. That’s why having the accounting insurance is important. From professional indemnity insurance to public liability insurance, there are a variety of options available to meet the specific needs of your accounting business. Learn more about the types of insurance available and how they can provide peace of mind for you and your clients by consulting a qualified broker.

It is important for chartered accountants to carefully review the insurance requirements and criteria set by their trade body and to work with an experienced insurance broker to select the right policy for their business needs.

Although PII is not a legal requirement for unlicensed accountants, it is highly recommended. Providing financial advice to clients involves a significant amount of responsibility and risk. If an accountant provides incorrect advice or makes a mistake, the client’s business may suffer, and without insurance, the accounting company would be solely responsible for any defence costs or compensatory damages. This could result in significant financial losses or even bankruptcy.

PII coverage can help offset the cost of compensation if your company is held liable for providing poor advice. It can also pay for any legal fees required to challenge the claim. Having PII can also help secure new business, as many clients expect their accountants to be adequately protected and may even request documentation before agreeing to work with them.

When selecting a PII policy, it’s crucial to choose one that meets your needs. You should carefully evaluate the policy’s coverage limits and exclusions, as well as the insurer’s reputation and claims handling history. Additionally, it’s essential to keep your policy up to date and to report any incidents or claims to your insurer promptly.

Other Types of Insurance That Can be Beneficial for Accountants

In addition to professional indemnity insurance, accountants may require other types of business insurance based on the size and nature of their company.

Management liability insurance can safeguard individual officers and directors from third-party claims alleging wrongdoing. Cyber insurance can protect businesses against financial losses due to cyberattacks or hacking incidents. Commercial crime insurance can provide coverage against losses caused by employee theft, forgery, robbery, or technological crime.

Public liability insurance covers the cost of third-party claims for personal injury or property damage. Business contents and equipment insurance can insure furniture or electronic equipment against theft or damage from accidents like fires and floods.

Legal expenses insurance can assist if a client has a contract disagreement, needs help with a debt from a non-paying client, or becomes the target of an HMRC tax inquiry. Employers’ liability insurance is mandatory for accounting firms with employees and provides coverage for compensation to workers who suffer injury or illness due to their work.