In the currently unfavourable market accountants may be shocked by their PI premium renewal. David Coughlan advises
There are several reasons why the spotlight has fallen on professional indemnity (PI) insurance in general. High profile corporate collapses due to the company auditors' failure to flag up accounting irregularities and an increasing litigious society where clients won't hesitate to sue if they believe they've had bad advice, have provoked sharp increases in PI premiums across the board.
Historically, accountants have not been overly concerned about their PI insurance. Compared to solicitors, major claims against accountancy firms have been relatively few and far between. This was reflected in their PI premiums, which have historically been at a much lower rate than solicitors and other professions.
However, UK accountants - from the big four to the independents - have all been affected in some way by the backlash from the fall of companies like Enron and Worldcom.
Future reputation and profit could be at risk, while the DTI's scrutiny of current regulation looks set to force the profession to be more open and may even abolish self-regulation.
Current unfavourable insurance market conditions as the cycle hardens and capacity dries up have been exacerbated by the recent accounting scandals. Several providers withdrawing from the PI market have further complicated matters. As a result, PI renewal rates will come as a shock to most accountancy firms. In fact most UK firms can expect premium increases of between 30% and 50%. In addition, accountants can no longer expect the same type of cover: those insurers still writing PI are in the process of reviewing their portfolios and subsequently may decline to offer cover to certain segments of that portfolio.
Finally, add to this the fact that a recent survey by Zurich Professional found that 30% of accountants never shop around. Moreover 80% have used the same provider for the past two years.
The key factors that affect price when actually purchasing PI cover are:
Immediate improvements in risk management can help minimise claims and subsequently reduce premiums.