Professional indemnity: ten tips

1. Don’t leave yourself high and dry

Chasing the lowest price can sometimes be a dangerous game to play. When
claims are low the market is flooded with competition, all trying to undercut
each other. But at times when claims are high many of these players cut and run,
which could leave you without cover. As luck would have it, this will probably
be the same time as a big claim comes in. It may be best to look at an insurer
with a long-standing reputation in professional indemnity.

2. Check with your institute

One professional indemnity insurance policy is not necessarily the same as
another and having cover doesn’t mean you are covered for all eventualities. One
of the best ways to ensure that you are getting the cover you need is to check
with your institute. As all accountants are required to have PI cover, each
institute has a selected list of insurers that members are advised to use. The
institutes assess all providers and in some cases can use their buying power to
negotiate special rates for members.

3. Find a specialised broker

Buying insurance is not like buying baked beans. Having a broker and an insurer
that understand your business is vital. Just like accountants have different
areas of expertise and commercial exposure, so do different brokers and
insurers. Make sure you get on that is right for your business.

4. Declare everything to you insurer

When providing details to you insurer for a policy, especially when a claim
comes in, make sure you declare everything, or you could end up in trouble.
Accountants have to be meticulous when providing details to their insurer. If
they are not there is a risk the insurer will be reluctant to process a claim.
In some cases leaving out key details could even see an insurer be within its
rights to refuse cover. There is also an obligation when a claim comes in to
disclose any documents that are relevant to the matter. Failure to do so could
see you in contempt of court.

5. Establish a problem handling procedure

The insurance industry is looking to accountants who have established a
problem handling procedure. This means a defined centre where all problems and
complaints are not only registered, but handled promptly, so they do not fester
and pick-up costs. Doing so will help you stand out amongst your peers to the
insurer and could help lower your premiums.

6. Don’t admit anything to your client

If an issue arises with a client that could potentially lead to a future
claim against you, be sure that you don’t admit culpability or say anything that
could be interpreted as such. Your insurance policy will most likely make this a
term of the cover. It may be a hard thing to do, as your first instinct may be
to protect your relationship with your client, but it could end up getting you
in even more trouble.

7. Stay out of court

Sometimes a court case will be unavoidable, but wherever possible it is best
to try and reach a settlement before it gets to that stage. Court cases can be
extremely time consuming and expensive, with costs potentially approaching £2m a
side. A settlement will also keep the matter out of the public arena therefore
avoiding reputational damage to both yourself and your client. Arbitration can
prove very useful in these situations.

8. Watch the skies

There are a lot of regulatory changes on the horizon that could alter the
chances of getting cover and the level you could get. The companies bill, with
the introduction of limited liability and the EU’s eighth company law directive,
with its impacts on accounting networks, will change how people take out
professional indemnity insurance, but at this moment nobody is entirely sure
which way it will go. Keep you eye on the market to take advantage of any
movements.

9. Stick to what you know

A recent survey showed that the largest number of claims against accountants
were over advice on endowments. The figures highlight that problems arise when
accountants start to move away from their core areas of expertise. Obviously as
other income lines have dropped off, such as in the lower end of the audit
market, ways have to be found to compensate, but if you do, make sure you are
fully equipped with the right level of expertise. Otherwise seek relationships
with other experts, which could be reciprocal.

10. Go ethical

The impact of business on the social and environmental landscape is becoming
impossible to ignore, so why not do your bit by taking out ethical professional
indemnity insurance. It’s still early days, and the options out there are
somewhat limited, but in the near future ethical PII could become a common
option. And the more people that demand it, the more insurers will look at it.