ICAEW accountants’ insurance requirements

Joining a professional body like the Institute of Chartered Accountants in England and Wales (ICAEW) is a smart move. It proves you have qualifications coming out of your ears, and that you're more than capable of doing a good job.

Of course, if the ICAEW is to represent quality accountants, they can't accept any old chancer.

So, as well as holding the right accounting qualifications, members engaged in public practice have to have ICAEW accountants' professional indemnity (PI) insurance.

PI insurance ensures that, if a client thinks your mistake has cost them money, you don't have to pay for legal fees and compensation. It's the best way to protect your business from the consequences of unfortunate errors.

Beside which, you can’t join the ICAEW without it. Here's what they say about it.

More is more 

Unfortunately, you can't just buy the cheapest cover you can find and be done with it. The ICAEW has some pretty specific rules about what your policy must include, how much you must have, and who you buy it from.

For ICAEW accountants' insurance, you have to use one of their approved insurers. Here's a full list of them. We only work with ICAEW-approved insurers, and our policy wordings meet their minimum requirements. So, if you're a customer of ours, you can relax.

ICAEW accountants' insurance levels of cover

The ICAEW stipulates that its accountants must have at least £2 million PI insurance. It's up to you whether you want this level of cover in the aggregate or for any one claim.

However, if you do decide to buy more than £2 million, it doesn't have to come from an ICAEW-approved insurer. Likewise, the wording doesn't have to be compliant either.

If your firm's gross annual income is less than £800,000, you're exempt from the £2 million minimum stipulation. Instead, your level of cover must be equal to two and a half times your firm's gross annual income, with a minimum level of indemnity of £250,000.

But, the ICAEW does warn that less than £2 million might not be enough protection if there's a claim.

Licensed firms, or firms authorised by the FCA to conduct insurance mediation activities, must have the minimum level of cover that's deemed appropriate for them. The FCA offers guidance on this on their website.

Finally, if your firm is an accredited probate firm, your minimum level of cover for probate work must be at least £500,000 for 'any one claim'.

Is that it?

Not quite.

There are further stipulations for ICAEW members looking for accountants' PI insurance. For example, your PI must include at least six years' retroactive cover to cover your past work.

If your accountancy firm closes its doors, the ICAEW requires you to have at least two years' run-off cover. After that, you should 'take all reasonable steps' to secure cover for another four years. (This ensures you're protected if you face a claim for work you did before you stopped trading.)

Take note that each year, firms have to complete a certificate of compliance to prove they hold the right PI insurance. This makes up part of your Practice Assurance annual return.

Be warned: the ICAEW checks with insurers and brokers that the information you supply is accurate. So make sure it is.

Untouchable 

If, for whatever reason, you can't buy insurance from a participating insurer, or that meets these specifications, you're able to join something called the 'assigned risks pool'. By joining, the ICAEW is able to offer its accountants some degree of insurance protection – it works a bit like a collective.

Prior to joining the assigned risks pool, ICAEW members can apply for 30 days' emergency cover. This is to give them sufficient time to find insurance elsewhere. To get this cover, you must be able to prove your attempts to approach the market to buy insurance were unsuccessful. You must also be prepared to pay an initial deposit.

The ICAEW will only cover you for claims made while you're in the risks pool. If a client alleges you've made a mistake, and it happened before you joined the pool, you're not protected.

You also have to sign an ICAEW contract stating you agree to pay their premium, and agree to an ICAEW review of your business. The maximum amount of time any business can spend in the assigned risks pool is 24 consecutive months.

Count on us 

For accountants in, or hoping to join, the ICAEW, we hope this has given you a better sense of your insurance obligations.

For ICAEW-specific advice, we recommend you visit their website, or get in touch with them.

If you have any questions about insurance for ICAEW accountants, feel free to give us a ring on 0345 222 5391.