Accountancy firms in the UK were this week warned professional indemnity insurance cover renewals could ‘increase by more than 60%’ over the next year, following the Enron fiasco.
According to insurance experts, PI rates were already on the increase before Enron and the 11 September disaster, largely thanks to the collapse of major PI player Independent Insurance. Following the two events, accountants with a high ratio of insolvency and taxation work are expected to be hit hardest.
Although the Enron affair has still to unravel fully, in some cases since the New York disaster rates have already rocketed. Insurers expect this trend to continue even if the accountant has remained claims free. Firms with claims will be hit even harder.
Insurance for the Big Five has become enormously complex in recent years, involving a number of captive insurance vehicles, some based in Bermuda, that have left the firms effectively insuring themselves.
Options available to accountants could include limiting their cover or increasing excesses. Another option, particularly for the Big Five, will be to make increased use of offshore captives.
Ian McCallum, UK director of financial lines at Marsh, the largest insurance broker in the world, said: ‘Due to the continuing reduction of insurers in the market, competition has reduced in recent times, and those left can cherry-pick who they want to insure.
‘Insurers can almost charge what they want now, and rises of 50-60% in the PI market over the next 12 months would not be surprising.’
McCallum, added: ‘Premiums are also been driven up by changing attitudes in the UK. We are now living in a claims culture.’
Mark Cheffers, chief executive of AccountingMalpractice.com, the US professional liability expert, added the Enron affair would almost certainly bump up insurance premiums for all accountancy firms.
‘The mere fact that Enron collapsed so rapidly has to have created a deeper concern (among insurers),’ he said.
According to Cheffers, premiums would inevitably go up as insurance companies would see the accountancy profession as a higher risk.
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