There were 134 respondents to the survey and separate detailed submissions from some insurers and firms. Most of the responses were from ICAEW firms, and over 80% were from firms with income below £800,000. A small number of Scottish and Irish firms also responded. Eleven insurers and four brokers responded to the survey and ICAEW held separate meetings with several others in line with our aim of ensuring any changes do not adversely affect the market.
Summary of consultation responses
Overview of responses
Some proposals received a generally positive response from respondents and included the following:
a) Over half of respondents felt that the current mandatory limits of indemnity should be increased.
b) Over 75% of respondents agreed that the insurance requirements should be linked to fee income rather than the number of principals.
c) Respondents considered 3% of fee income is the correct calculation for the maximum permitted excess (around 46% agreed and 23% were unsure).
d) Those who responded to questions relating to large firms were generally supportive of using a £50m threshold instead of 50 principals.
e) It was clear from responses that the concept of captive insurance is not generally considered to be a relevant issue in the accountants’ market except for the very large firms.
f) Although the response rate to this question was low, respondents agreed with the proposed factors used to assess group arrangements.
g) There was general support for removing the term “best endeavours” and replacing it with “reasonable steps” in respect of the requirement to put in place run-off cover.
There was strong opposition to some proposals and the response to other changes were polarised:
d) 50% of respondents thought that an insurer should not be required to meet the excess if a firm fails to pay and 78% thought this change would have a negative impact on pricing, capacity or insurer appetite.
e) 52% of respondents did not agree that making run-off cover automatic and non-cancellable for non-payment of premium should be introduced even if the premium increased.
f) There was general support for increasing the limits of indemnity, however, there were a number of comments received from smaller firms (with income of less than £100k) concerning the impact on the price of their insurance if the proposals were taken forward.
g) 53% of respondents considered the changes would have a detrimental impact on a firm’s ability to obtain insurance which complies with the PII Regulations.
h) There was a mixed response to the consultation as to whether the right balance between consumer protection and availability of insurance had been reached (25% strongly disagreed, 25% disagreed and 29% agreed).
The PII Committee wanted to make sure that the changes did not reduce the number of qualifying insurers and that insurance continued to be of a reasonable cost to accountants. The likely impact of the proposals on insurance premiums and availability of insurance was a key consideration. The following are a snapshot of insurers’ responses and demonstrates the opposition to some of the proposed changes:
b) In relation to the proposal to make run-off cover non-cancellable for non-payment of premium an insurer commented:
"If ICAEW applied similar extensions of cover under their PII arrangements, it can be assumed that an appetite restriction would follow and an increase in premiums for all, not just in some cases."
c) One of the largest providers of insurance to ICAEW firms, when asked if the changes will have a detrimental impact on a firm’s ability to obtain insurance, said:
"It is likely this will result in capacity being withdrawn and pricing increasing for Insurance cover."
d) In response to whether ICAEW had struck the right balance between consumer protection and the availability of insurance an insurer commented:
"Strongly disagree as this could lead to customer harm for some of the firms as their insurance premiums will need to increase due to the increased costs insurers will incur, which are then likely to be passed onto the end client. There could be less choice of insurers as they withdraw capacity…"
e) The International Underwriting Association (IUA) is a body that represents the interests of insurance companies across lines of business including some of ICAEW’s participating insurers. The IUA submitted a detailed response to the consultation. The IUA was supportive of proposals to increase limits of indemnity and linking the calculation to fee income rather than the number of principals. However, the IUA also expressed several concerns including:
"IUA are concerned about the timing of these changes as we are not aware of any market failure, with cover broadly available to most entities that are not financially distressed. These changes, if adopted, are likely to have significant implications for the availability of and affordability of insurance for many insureds and especially for smaller entities."
We have considered the responses to the consultation in detail and reflected on the feedback received. As a result, not all proposals are being taken forward and some have been modified in light of the consultation responses. Updated PII Regulations will come into effect on 1 September 2023.