Professional indemnity insurance
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.
Prepare your professional indemnity insurance renewal early
ICAEW’s PII Committee is aware that there have been some changes in the PII market over the last 12–18 months. These could mean that firms find it more challenging (or time-consuming) to renew cover than previously. It could also mean that firms find their premiums increase
It is unclear if this is a hardening of the market or a price correction, but we understand that insurers are reviewing more critically the risks they are willing to accept and the price they will set for cover. This may particularly affect firms with a claims / notifications history; those involved in ongoing legal action and / or firms engaged in activity which insurers perceive as more high risk (e.g. tax mitigation schemes, investment advice, insolvency, M&A work).
The committee recommends that firms prepare early for their renewal and to take advice from a trusted and reputable broker or other advisor when taking out their insurance. It is recommended that firms discuss with their broker their placement strategy to ensure that they have access to a number of different insurers, and specifically whether they are ‘whole of market’ brokers.
Firms have a legal obligation to make a fair presentation of the risk on taking out or renewing cover. Therefore, in order to safeguard the indemnity available for a claim should it arise, it is essential that firms are open and transparent with their insurer / prospective insurer when taking out or renewing cover as to:
- the activities they undertake;
- their claims history and any potential claims (or grounds to suspect a claim - ‘circumstances’); and
- their disciplinary / regulatory history.
Guidance for firms on arranging cover
ICAEW’s Professional Standards Department shares the latest advice on PII and the importance of making sure there are no gaps in your PII cover:
The duty of fair presentation introduced by the Insurance Act 2015 has resulted in a number of changes to PII:
List of approved insurers
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.
Current PII Regulations and minimum approved wording
PII minimum approved policy wording
Non-members can download an order form to obtain copies of ICAEW's minimum approved policy wording.
If an insurer does not use the PII minimum policy wording, the insurer must add a Difference in conditions endorsement.
PII and tax avoidance schemes
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’s Engagement Letters Helpsheet includes material provided by the Tax Faculty for tax practitioners about specialist and ad hoc tax advisory services.
What if my firm is unable to obtain 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
What do I have to tell my clients about my PII?
Under the requirements of the Provision of Services Regulations, you have to disclose information about your PII to clients.
What do I have to tell ICAEW about my PII?
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.
Do I need PII after I've ceased to practise?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).
Do I need PII if I do not engage in public practice?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.
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