When it comes to protecting your business, you can never be too careful. ICAS think so, too. That's why they insist on ICAS insurance for all their chartered accountants.
Professional indemnity (PI) insurance to be more precise. It pays for a legal expert to defend you if one of your clients alleges you've made a mistake or been negligent.
It also covers any damages or compensation you're liable to pay unhappy clients. So, a business-saver on two fronts.
Here's what ICAS have to say about your accountants' insurance requirements.
ICAS insurance requirements
Not only does ICAS wants its practicing accountants to have professional indemnity insurance. It requires them to have a certain level of cover in order to be financially protected.
According to ICAS, if your accountancy firm's gross income is more than £800,000, you need £2 million PI cover for 'any one claim' or 'in the aggregate'.
Less than £800,000, and you just need 2.5 times your annual fee income and no less than £250,000 worth of cover.
However much you get, your policy should be from an ICAS-approved insurer. We work with several ICAS participating insurers, so if you're looking to buy your accountants' insurance from us, you're in luck.
Anything else?
ICAS members who’ve stopped trading need two years' run-off cover. This covers claims involving past work but not current or new work. After that, members must take 'reasonable steps' to secure another four years' worth of run-off cover.
If your accountants' firm has employees, ICAS asks that each one is named on your insurance policy. This means telling your broker or insurer each time you take on new staff. Don't remove past employees from the policy though – you still need cover in case claims arise for work they did before they left.
Risk management
As well as having insurance for when things go wrong, ICAS wants its accountants to reduce their chances of a claim in the first place. Seems sensible.
It recommends you assess your risk level at least annually, ideally to coincide with your policy renewal, but more frequently if you make major company changes.
Here are a few of its risk management suggestions:
- Go through each client and contract, assessing the possibility of a claim, and its potential impact. Consider past work, as well as current contracts.
- Consider the potential impact a claim could have on your clients' stakeholders.
- Discuss any worries you have with your team. If they're serious, contact the Members Service Department at ICAS.
- Evaluate client projects in terms of the nature of the work, and the amount of client co-operation required. Also, consider the type of business your client undertakes and how credibly they operate.
- Be aware of the current economic climate. Not just from your point of view but from your clients' too.
Damage control
If you recognise that a client has a higher-than-average potential risk of making a claim, ICAS suggests establishing a risk mitigation procedure. In particularly risky cases, consider whether it's worth retaining the client.
If you're unfortunate enough to have a claim, ICAS has a procedure for members to limit its damage. They ask that:
- Partners and employees communicate about what's happened to identify what caused it.
- Firms establish a procedure for notifying insurers of claims.
- Members learn from experience. (Bit of a difficult one to quantify, this.)
Adding up for you?
Although it may seem that ICAS are being overly fussy, these are all pretty standard accountants' insurance requirements. Several other accounting bodies have similar guidelines, including the ICAEW.
You can contact ICAS if you need more info. Or, for any questions on ICAS-approved professional indemnity insurance for chartered accountants, feel free to give us a ring on 0345 222 5391.
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