Why do accountants need indemnity insurance?
Legal protection from accusations of professional errors and omissions
Accountants provide professional financial and accounting services, and even with the utmost care and diligence, errors or omissions can occur.
Client assurance
Clients often seek assurance that their interests are protected when they engage the services of an accountant. Having indemnity insurance in place can provide this assurance, making clients more likely to trust and work with the accountant or accounting firm.
Financial stability
Professional indemnity insurance safeguards accountants' financial stability. In the event of a significant claim, the insurance ensures that accountants can continue their business operations without jeopardising their personal assets.
Regulatory requirements
If you’re a qualified chartered accountant and become a member of either the ICAEW or ACCA (Association of Chartered Certified Accountants), you will also be required to hold professional indemnity insurance.
Professional indemnity insurance for accountants
Professional indemnity insurance is a critical component of risk management for accountants. It helps protect both their professional integrity and their financial well-being, ensuring that they can continue to provide valuable accounting services with confidence.
Accountants are entrusted with financial and accounting responsibilities, and errors or negligence in their work can lead to financial losses for their clients. If a client believes that they have suffered a financial loss due to an accountant's professional misconduct, they may file a legal claim.
In the event of a significant claim, indemnity insurance helps accountants maintain the continuity of their business by covering financial liabilities. This is particularly important for small to medium-sized accounting firms.
What does professional indemnity insurance for accountants cover?
PI insurance for accountants provides cover for various liabilities and risks that accountants may face in the course of their professional services. The specific coverage can vary based on the insurance policy and provider.
Cover responds to client accusations of:
- Breach of your duties
- Acting negligently
- Failing your duty of care
- Making an error
For example, a client or a third party may accuse you of:
- Preparing inaccurate financial statements that led to incorrect reporting of a company's financial health and potentially resulting in legal claims for financial losses.
- Making tax errors that caused a costly dispute with tax authorities.
- Missed deadlines resulting in negative financial consequences for clients.
- Failure to comply with industry regulations resulting in a threat of a fine or loss of licence.
Switching your professional indemnity insurance
Every now and again you may wish to consider a better deal. If you decide to switch to a new insurer, remember that you can no longer make claims against the previous policy. Ensure your past work is covered with the new insurers under what is called “retroactive cover”.
Should I keep professional indemnity insurance if I take a break or retire from accountancy?
It’s wise to keep your professional indemnity if you’re taking a break or retiring from accountancy. Claims against professional misconduct can surface months or years after you delivered the work,
Remember: If you have cancelled your policy, your insurance will no longer work.
How long you keep your cover in place is up to you. Consider the type of work you did and the likelihood that a client might bring a claim against you.
Public liability insurance for accountants
If you run an accountant business and part of your business activities is seeing your clients face to face, either at their premises or your office, you may benefit from having public liability insurance.
Public liability coverage safeguards your business from unforeseen incidents, such as accidentally spilling coffee on a client's expensive laptop or a client slipping on a wet floor. The expenses related to injury compensation and legal fees can rapidly escalate, potentially reaching thousands, if not more.
What does public liability insurance cover?
Public liability insurance addresses legal claims related to accidental injuries or property damage. In the context of an accountant's workspace, the risk is typically low. However, it's prudent to contemplate this insurance if you engage in regular face-to-face interactions with clients and third parties during your daily activities.
Cover includes:
- accidental injury or death
- accidental property damage
For example:
Someone may claim compensation because during a business meeting with you:
- By accident, you knocked over your client's expensive laptop.
- You failed to warn someone coming to your premises that the floor is wet and suffered a nasty fall.
Other insurance accountants buy
As an accountant, the insurance coverage you need will depend on your specific circumstances. Can you afford to replace your computer equipment if it's lost, damaged, or stolen? Are you prepared to handle a legal dispute if one arises? Will you be able to cover your business expenses if you become ill?
Commercial legal expenses insurance
Most commercial legal expenses insurance will protect accountants against various tax and legal issues you may encounter due to your profession, which are not covered by professional indemnity or public liability.
At Suited, we combined £100,000 of commercial legal expenses insurance with helplines and other tools to better assist accountants in dealing with these issues. We call this Business Legal Protect, and it’s part of your subscription.
Business Legal Protect offers qualified advice and assistance with:
- Legal and accountancy matters concerning your business
- Criminal prosecution
- Compliance & regulation issues
- Unpaid invoices (over £200)
For example:
- HMRC flags you for an IR35 investigation
- You need legal help chasing a major unpaid invoice
- You need guidance on compliance issues for your business
Electronic business equipment insurance
Accounting is undergoing a tech transformation which means most accountants have increased their investment in electronic equipment.
If you are one of them, you may like to protect it by having electronic business equipment insurance that would pay for the cost of damage or replacement.
