PI insurance costs to jump as insolvencies soar

Most mid-tier accounting firms are set to see the cost of professional indemnity cover rise by up to 15% as the economic downturn fuels legal action against the profession.

Insurers providing PI cover are hiking premiums in response to a sharp rise in insolvencies, which increases the possibility of legal action against accountants or a firm providing advice, according to Victor Knope, of insurance broker FirstCity.

‘A firm with revenues of £30m paying £850,000 for cover will see a rise of 10-15%,’ said Knope.

Practices in the ‘group A’ insurance bracket ­ the 35 firms below the top six ­ will find themselves with bigger premiums this year, he added.

Knope, whose firm is a professional indemnity adviser to the ICAEW and ACCA, said fewer insurers provide cover for bigger accounting firms, partly because they are thought to be more vulnerable to legal action, which can sometimes cost hundreds of millions of pounds.

‘The bigger the firm, the more complex its needs,’ said Knope. ‘Fewer insurers want to be involved.’

Observers say the limited number of suppliers in the PI insurance market makes it harder for firms to get a discount by changing supplier.

Hiscox, a major PI insurer, confirmed that it was likely to increase rates.

Gary Head, professions underwriting director at Hiscox UK, said: ‘The rates for accountancy firms have got to unsustainably low levels and below the levels the market can sustain with the increase in claims.’