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Accountants professional indemnity insurance, manchester, Sale, Stockport

Accountants professional indemnity insurance

Accountancy is classified by professional indemnity insurers as one of the more traditional professions. The profession is however made up of members from a variety of professional bodies. There are also a number of unqualified but highly experienced professionals in the industry.

Some of the professional bodies maintain rules for mandatory PI cover and you should ensure that you know your minimum requirements before purchasing professional indemnity cover.

Unfortunately, along with most other traditional professions, the professional indemnity market has seen a vast rise in the number of claims against accountants and this has caused a number of insurers to decline to write accountancy risks or to increase their premium significantly.

Claims against accountants are very common and can arise from a number of different scenarios.

Example claims

Personal taxation
A failure to lodge tax returns led to a client losing tax repayment and interest. Cost £20,000

Personal taxation/pensions
Incorrect advice as regards pension payments and alleged concealment of commissions. Cost £675,000.

Accountancy
A firm acted for the purchaser of a business. There was confusion as to their role. The purchaser thought that the firm was looking at the commercial viability of the acquisition. The firm thought that their instructions were limited to the preparation of cash flow forecasts based on given information for the purpose of raising finance. Cost £250,000.

Company tax
The firm, who acted as accountants to a profitable company, introduced them to a tax mitigation consultancy. Schemes of tax mitigation were embarked upon though these proved to be fraudulent from a tax perspective. Cost £100,000.

Auditing
The firm failed to spot a serious fraud due to inadequate audit procedures. The cost exceeded the limit of indemnity of £1m.

Investment advice
Poor investment advice led to serious loss to a trust. Cost £210,000.

What do insurers look for when considering your risk details?

When professional indemnity underwriters look at an accountancy risk there are a number of factors that they will take in to consideration before providing a quotation:

Size of the firm – This is mainly established in two ways, the number of partners and staff and the gross annual income of the firm.

Qualifications and experience -Underwriters will look for a mix of qualifications and experience and if you are not qualified then the underwriters may want to look at the relevant CV’s to look at the experience within the firm.

Type of advice given – Insurers will want to understand the type of work undertaken as certain areas have proved to be more difficult to underwrite in the past due to the claims frequency and the quantum of such claims. That is why insurers will often ask for a breakdown of the work performed and the insurers approach and perception is likely to be as follows depending on the answers:

  • Audit, accountancy and company tax for quoted companies – Perceived as high risk
  • Other audit and accountancy (including related tax work) – Fine with underwriters
  • Personal taxation – Usually fine but can become more difficult to underwrite if you have clients who are high profile, such as sports stars or clients involved in the entertainment industry.
  • Corporate taxation – A variable hazard depending upon the nature of work.
  • Management consultancy – At interim management level or board level the risk can be significant.
  • Insolvencies, liquidations and receiverships – Viewed as very high hazard.
  • Commissions from investment business regulated under the Financial Services Act – If you only act as an introducer then the exposure is low hazard, but if you actually give financial advice then this is viewed as high risk.
  • Mergers, acquisitions and disposals work – Perceived as very high hazard, especially if you perform the associated due diligence work.
  • Work for overseas clients – Insurers will want to know who you are working for before they can consider this.

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A Typical professional indemnity policy wording for an accountant would cover the following:

  • Section coverage
  • Breach of civil liability
  • Negligent act error or omission
  • Unintentional intellectual property rights infringement (other than patents)
  • Unintentional breach of confidentiality
  • Unintentional defamation
  • Loss of third party documents or data
  • Computer virus transmission
  • Ombudsmen awards
  • Negligence of sub-contractors
  • Bodily injury or property damage arising from breach of professional duty
  • Defence costs
  • Court attendance costs

Hensure Business Insurance can cater for all types of accountancy risks and approach a number of different insurers to obtain the best cover and premiums available in the market.

Please try us today.

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