Professional indemnity insurance (PII), is compulsory for all ICAEW members who have a practising certificate and engage in public practice. PII is a requirement of a number of regulations.
The regulations relating to audit, insolvency, probate, investment business (the DPB Investment Business Handbook) and the eligibility requirements for a practising certificate (PC) all require members and firms to comply with ICAEW's PII Regulations. The PII Regulations give details of the amount of insurance required, insurers and the policy wording insurers must use.
Practising without PII is regarded as a very serious matter.
14 June 2017 changes to PII Regulations. The PII Regulations were amended to provide individuals/firms with a right of review in cases where applications for dispensation from the requirements of the regulations are either refused or granted subject to conditions. Guidance for the PII Committee in determining dispensation requests has also been added in Appendix B to the regulations.
1 May 2017 changes to PII Regulations and minimum wording. Participating insurers are now required to provide at least 24 months run-off cover to firms which cease practice. This cover may be conditional on payment of an additional premium, but it should make it easier to obtain run-off cover in the market. Firms will also have the freedom to determine the terms and extent of the run-off cover, provided this cover complies with the minimum requirements set out in the regulations.
Professional indemnity insurers are taking a cautious view of insuring firms that advise on tax avoidance and tax mitigation schemes. Initially, insurers will try to identify such firms through questions on the proposal form. Then they will probably ask such firms to complete a further questionnaire with more detailed questions about what the firm is doing and the procedures it has in place to minimise the risk of claims. Based on the firm’s answers, the insurer will then decide whether to insure the firm and the premium to be paid.
Insurers are also reviewing the position of firms that just introduce clients to other firms that give advice on tax avoidance and tax mitigation schemes.
Because of this increased scrutiny, the renewal process may take longer than before, especially if a new insurer has to be found. So firms are advised to start the process sooner than they may have done in the past.
Section 8 of the guidance, Professional conduct in relation to taxation, gives advice to firms on how they should deal with tax schemes, including if the only involvement is to make introductions to other firms.
ICAEW Advisory’s Engagement Letters Helpsheet includes material provided by the Tax Faculty for tax practitioners about specialist and ad hoc tax advisory services. You’ll need to log onto the website to view this item.
Under the requirements of the Provision of Services Regulations, you have to disclose information about your PII to clients. See our Services Directive helpsheet for further information.
You must obtain the insurance required by the PII regulations from a participating insurer. These insurers have agreed to meet the requirements of ICAEW's minimum approved policy wording. The fact that an insurer is on the list does not imply that ICAEW has performed independent checks on the insurer's suitability. ICAEW recommends that you investigate the current ratings and discuss with your brokers the suitability of these insurers when you take out or renew your insurance.
Changes to the policy wording explains what changes have been made to the 2017 wording from the previous policy wording.
If an insurer does not use the PII minimum policy wording, the insurer must add a Difference in conditions endorsement.
Non-members can download an order form to obtain copies of ICAEW's minimum approved policy wording.
If you are a PC holder, we will send you (or your firm) an annual return approximately one month before your PII renewal date. The PII section of the annual return asks for information about your PII.
If your firm is unable to obtain PII in the insurance market, it can apply to enter the assigned risks pool for 'emergency' cover for a period of up to two years so that it can continue to practise. Section 4 of the PII regulations sets out the procedures for firms or members who cannot obtain cover in the market place.
The assigned risks pool is for firms that are unable to obtain professional indemnity insurance (PII) in the insurance market. It provides emergency cover for a period of up to two years so that firms can continue to practise.
Run-off cover can be provided in the ARP if it's not available in the general insurance market.
If you're unable to obtain insurance on the open market:
You'll need to enclose with the agreement a cheque for £1,060 for the deposit premium (including insurance premium tax). Insurance cannot be provided if this deposit premium is not paid. A final premium will then be assessed.
The firm will be admitted to the ARP for an emergency period of 30 days when the signed agreement and premium have been received. During this period, the firm (with the assistance of its brokers) is required to obtain evidence that the insurers included in the list attached to the entry procedure have declined to offer insurance (known as 'declinatures'). A firm may also claim constructive declinature.
After your firm has been accepted into the assigned risk pool (ARP), ICAEW will arrange for a practice review to:
Your firm is required to pay for an ICAEW practice review visit. This is a condition of entry into the ARP. This document gives an overview of the process for the visit. The visit will be tailored to suit your firms specific circumstances. Before the visit takes place, your firm is required to pay the full estimated cost. An adjustment credit note or invoice will be issued at the end of the visit process.
For a maximum of two years. At the end of the first year, the firm will be asked to complete a proposal form to obtain cover for a second year.
Only in very exceptional circumstances is an extension granted for time in the ARP beyond two years. Before the firm leaves the APR at the end of two years, a further review visit (at the firm's expense) may be required.
A firm can leave the ARP at any time and, if appropriate, a return of premium is paid. The firm must comply with the PII regulations.
You should take active steps to obtain insurance in the market place well before the end of the two-year period. It helps to get the services of a broker who is knowledgeable in PII matters.
You must use your best endeavours to ensure you are covered by arrangements that comply with ICAEW's PII regulations for at least 24 months after you cease to practise (regulation 2.7). A similar requirement is placed on firms that cease to practise (regulation 2.8).
If you hold a PC but do not engage in public practice, you do not need PII. If you decide to return to practice, you will require PII immediately and should inform the members' registrar that you have returned to practice.
Guidance on PII to help firms as they complete their annual return online.
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