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The professional indemnity insurance market has accelerated recently and, consequently, the number of PII providers has increased. Often, general insurance brokers are offering PII without being able to provide the right kind of advice.
But modern day accountants are problem solvers and business advisers with a range of skills and proficiency in many business areas and need a provider that understands the value and risk placed on the advice you give.
When looking for a PII broker, some simple questions can be asked:
• How many years have you been supplying professional indemnity insurance?
• How many clients do you currently service in my profession?
• Are you endorsed or appointed by any governing or regulatory body?
PII specialists will have direct access to the underwriter rating your risk. This is vital in terms of the broker being able to negotiate effectively on your behalf; that way the process is more fluid and information is transferred more accurately.
When seeking terms it is advisable to select a specialist to undertake their market exercise in addition to their incumbent service provider, as non specialists may simply flood the market with their proposals. Specialists will know which underwriters to approach and invariably have exclusive relationships with major underwriters, enhancing their negotiating capabilities.
Today's specialist PII brokers cannot be judged simply on the insurance services they offer, but also on their ability to effectively handle claims. They should effectively manage the entire process, ensuring you are fully informed throughout.
When claims are made against you, your reputation is at stake.
Your broker should understand this and advise you of measures that can be deployed, ensuring an acceptable resolution to all parties.
Ultimately, the relationship between you and your broker is integral to getting the most from your PII. Specialists will present your firm's case to the markets that will quote you, and the quality of the presentation your broker makes to market is critical.
A specialist will have developed the appropriate proposal form and know the right questions to ask of you, so that the most relevant cover is offered - therefore a fair and accurate premium is quoted.
SBJ Professional is the appointed broker to ICAEW members for professional indemnity insurance.
Professional indemnity claims are thankfully rare, a fact supported by relatively low premiums. With care, common sense and the adoption of good practice the incidence can be further reduced and such an achievement should obviously benefit all - you, the client and the insurers.
Avoiding a claim
Lack of time, being too closely involved with the detail and failure to communicate effectively are the most common reasons for claims arising.
But what can be done about these issues? Follow a strictly common sense approach. Before you accept a job, start by considering it fully:
• Do you have enough time to do your part of the work without being stressed?
• Have you access to enough, appropriately competent resource, to do the rest of the work?
• Are you up-to-speed on the technical front?
• What about the client? Will you find that time and commercial pressure come into play?
• Will information be forthcoming?
• Who else may be relying on this exercise? Perhaps, third parties who might claim that you owed a due of care to them.
Engagement terms need to be understood and agreed between the firm and the client. The engagement letter represents the written contract between the client and the firm and provides an opportunity to clarify any aspect of the work that might form the basis of misunderstanding - a common source of professional liability claims. I remain surprised by how often this fundamental step is missed where the service in question is not an audit.
You may wish to consider limiting your exposure to professional indemnity claims by including appropriate terms within the engagement letter. This is possible for most professional services though audit remains legally barred until the provisions in the Companies Act 2006 are implemented.
Practitioners sometimes find themselves sued by third parties who assert that the firm owed them a non-contractual duty of care, such as a bank when making a lending decision based on the client's audited financial statements. When the firm knows that a third party will have access to the output of its work and will place reliance on it, then it should consider including an effective disclaimer.
Take a critical look at the work before it goes out of the door.
• Have all relevant professional standards have been applied? Is the service presented in an appropriate form?
• Did anything happen during the course of the work that might provide grounds for someone to claim an alteration in the basis on which the work was done?
• Are related reports in an appropriate format and include appropriate limitations and/or disclaimers?
• Have all aspects been subjected to a rigorous and objective review, ideally by someone not involved in the work?
Many firms have a system of second partner review, to cover these issues, but where firms do not have such resources, other safeguards need to be considered. These could include putting the work to one side for some time after it has been completed, to enable a fresh eye to be cast over, or employing an external accountant for a 'hot review'.
Handling a claim
Whenever a claim arises or is threatened make sure you follow the policy terms precisely, or you run the risk of the claim being rejected. Notify your insurer. If appropriate, do this through your broker. Make sure you have your insurer's consent before you respond to the claimant.
It is not uncommon for the insurer to want to keep the firm and the claimant out of direct contact. To breach this may be considered by the insurer to prejudice the position, and the last thing you want is a disagreement with your insurer.
A second tip is to maintain a contemporaneous log. No matter how good your memory, these matters have a tendency to take longer to sort out than expected. The sequence of events can be important and a log can provide clarity.
Next step must be to research the basis of the claim. Despite your certainty, is there substance to it? As with car insurance never admit blame, but a sensible conversation with your broker can sometimes help restrict the process and may save you time, worry and heartache.
At this point in the process, it is common to feel out of the communication loop. Things may be taking place, but the pace often seems slow at best. Remember, while for you this is hopefully an exceptional case, this is everyday business for those dealing with the claim.
Have patience, and when you are perhaps told that the insurers have settled, hold back your frustration that they didn't apparently fight the claim or build on that point you identified during your research. In today's market, pragmatism rules.
Alan Taylor is director of practice member services at the ICAEW
