7 Things Accountants Needs to Consider When Applying For Professional Indemnity Insurance
Buying any insurance, can be a confusing and time consuming process. And when it comes to getting your Professional Indemnity Insurance, it can be even more so. Here are 7 tips for Accountants to consider when it comes time to get their PI sorted.
1.Are you required to hold a certain level of cover?
Whether you have CPA or CA accreditation, most regulatory bodies require you to hold a certain level of insurance.
To be a member of Chartered Accountants ANZ you are required to provide information on your professional indemnity insurance. CA ANZ requires that professional indemnity covers each principal for at least $1 million value.
CPA Australia requires a cover to fit a number of requirements including fidelity cover, indemnity exclusive of defence costs, and other specifics, as well as align with the ASIC requirements for the Limited Australian Financial Services Licence.
If you are a member of a Professional Standards scheme, they will limit your civil liability for any damages awarded against you in the event of a claim. Each scheme varies so you should check your scheme to see what limit they provide.
Make sure to look into what is required of your business and relevant associations to ensure you are adequately covered.
2.What are your risks?
The next thing to consider, after looking at what is required of you, is the risks your business faces. Even with the minimum required insurance, you may also have a number of unique risks that could seriously affect your business. Most accounting business will cover above the $1 million, especially when the price rise between $1 million and $2 million coverage is minimal.
The things you will need to examine are;
- existing and intended areas of practice,
- experience and expertise,
- your own internal control procedures,
- the technology you use,
- the size of your clients,
- and the maximum potential exposure.
TYPES OF RISKS TO CONSIDER
|Business Continuity Risks||Business Risks||Financial Risks|
|Human Resources Risks||
The Accounting Professional and Ethical Standards Board (APESB) may soon require accounting firms to establish and document a risk management framework under APES 325 Risk Management for Firms.
Other documents that can help you determine these risks are AS/NZS ISO 31000:2009 Risk Management – Principles and guidelines, and for small firms Module 7: Risk Management of the Guide to Practice Management for Small and Medium-sized Practices (Small and Medium Practices Committee of the International Federation of Accountants).
Once this risk is determined you can see what level of cover you will need. A $1 million requirement could be too low if your potential risk is a lot higher.
3.Not all policies are the same
No two professional indemnity policies are exactly the same. It’s important to read the fine print, to see what is included and excluded. Then you can be sure that you are actually covered for what you think you are. If you don’t understand the technical terms, speak to an insurance professional who can help you understand the meaning.
Some policies will cover:
- Lost Documents,
- Fidelity (cover for a loss due to employee’s dishonesty),
- Public Relations Costs,
- Statutory Liability (cover for unintentional breaches of acts or legislation),
- Court Attendance Costs and Official Investigation Costs.
Others will have certain extras as optional extensions which you may need to add to your policy. Also, not all policies will cover former principals or joint ventures where some will extend the cover to this.
It’s important to look at the details side by side to help you make your decision. This is where comparison sites can come in handy as they will let you compare not only prices but also policy details side by side.
4.Claims Made Policy
Professional indemnity policies will cover you on a ‘claims made’ basis. What this means is that the date which you a claim is made upon you must fall within the policy period, not the actual date that the incident occurred. It’s important then to make sure you have up to date cover and report all third party claims promptly to the insurer within the policy period.
Claims-made policies will have an exclusion that eliminates coverage for claims made on events that took place before a specific date (known as a retroactive date), even if the claim is first made during the policy period.
This ‘Retroactive Date’ means that it’s important to have an active policy as soon as possible when commencing work and make sure that the retroactive date is far back enough to give you adequate protection.
6.Will it cover contractors or subcontractors?
This is an important issue to think about if you use any contractors or subcontractors. If you use contractors or subcontractors, it is important that you have cover for any liability which attaches to you arising from the actions of the contractor or subcontractor.
7.Is Professional Indemnity Enough?
Once you’ve had a look at your risk areas you may see a number of areas that professional indemnity on its own will not cover. You may be managing a team and see a significant human resource risks which will require a management liability policy to cover.
Or you may have a large amount of data online which presents a potential risk to your business and may need to consider a cyber liability policy. It’s important to look at the whole scope of your business and what you need cover for.