What type of insurance do accountants need?
Accountants actually need many different types of insurance. Definitely, they need professional indemnity (PI) insurance. Business insurance is also a must, which includes public liability insurance. Cyber crime insurance is also becoming more and more popular – that protects against someone stealing your data from the internet, and employment practices liability insurance, which covers sexual harassment, workplace bullying and unfair dismissal. Employment practices cases have certainly increased in recent times. Directors and officers insurance is another type of insurance many accountants will need, especially if they are operating an external directorship. Tax audit insurance is also highly recommended for accounting firms in order for them to protect themselves and their clients against the cost of professional fees in the event of an audit, enquiry, investigation or review by the ATO or other government agency.
It’s important to note, a lot more accountants outsource work offshore now so they have to make sure their PI insurance has the cover for contractors because some policies don’t have it, or if they have set up their own operations internationally they need to make sure they have all the insurance they need in that country.
With the accountants’ exemption set to expire, how will the new licensing regime affect the insurance accountants need?
We believe accountants will need to make a cost-based decision on whether it is worth continuing to provide that specific advice or step out of it altogether. Depending on what happens, it will determine how insurers will price the policies. At the moment there is a bit of caution and some insurers are dipping their toe into the water to see exactly how much advice the accountant can give. The thing that makes most insurers nervous is the financial planning advice. If the advice that the accountant can give their clients becomes the same risk profile as financial planning advice then accountants can expect their premiums to rise sharply. With financial planning the policy must be RG126 compliant and must have a minimum of $2 million limited of indemnity whereas now some accountants can have as low as $500,000 (depending on which association they belong to). If the insurer actually thinks that the risk profile is similar to financial planning advice, that may have to increase to $2 million which will make the premiums higher.
What should accountants look for in an insurance provider?
The broker is the most important thing. The broker needs to have a good reputation and experience in dealing specifically with accountants. It’s very important a broker understands the complexity of dealing with accountants' professional indemnity insurance. At Accountancy Insurance we will always understand the challenges and changes ahead for the profession because we don’t specialise in anything other than accountants’ insurance.
Accountants should look at things such as whether the broker provides risk management education to compliment the insurance policy and assist in lowering the risk profile. We have been very surprised by the number of accountants out there who purchase a policy from somewhere but have never been educated about it.
Accountants need an insurance broker who understands exactly where the profession is heading in terms of the type of work that accountants are doing and the risk profile associated with it.