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 understands that the market for accountants’ PII could be particularly limited in Q4 2019 as some insurers cease to write new policies or renew business during the final months of the year. As always, 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.
Changes to the PII Regulations and minimum wording
The PII Regulations and PII minimum approved wording were amended on 1 October 2018. The changes will affect policies incepting or renewing from that date.
- PII Regulations – the amendments have been made for completeness and to reflect current practice. They also reflect the increased limits of indemnity required of firms engaged in insurance distribution activities under the Insurance Distribution Directive from 1 October 2018. Access the new PII Regulations – effective from 1 October 2018.
- PII minimum approved wording – substantial amendments have been made to the PII minimum approved wording. Most of the changes are of a drafting nature to make the minimum wording clearer and more concise. A few amendments are substantive and will extend coverage under the minimum wording. Access the new PII minimum approved policy wording – effective from 1 October 2018.
- Access the Summary of changes to the PII Regulations since introduction – a summary of the changes made to the PII Regulations since the regulations were introduced in 1998.
- Access the Schedule of changes to the PII Regulations – an explanation of the changes made to the 1 October version of the PII Regulations.
- Access the Schedule of changes to the PII minimum approved wording – an explanation of the changes made to the 1 October 2018 PII minimum approved wording.
Guidance for firms on arranging cover
- The duty of fair presentation introduced by the Insurance Act 2015 has resulted in a number of changes to PII. Learn about the introduction of the duty of fair presentation.
- NEW: Insurance – key areas for consideration: Guidance from the PII Committee
Access the schedule of changes: a summary of changes to the PII Regulations since they were first issued in 1998. If you require copies of the PII Regulations pre 2015, please contact email@example.com
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 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.
Disclosing information about your PII
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.
Can I obtain PII from any insurer?
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.
ICAEW's minimum approved policy wording
You can view the current PII minimum policy wording and the wording used in previous years.
If an insurer does not use the PII minimum policy wording, the insurer must add a Difference in conditions endorsement.
Pre-2015 versions of the PII minimum policy wording are available on request.
Non-members can download an order form to obtain copies of ICAEW's minimum approved policy wording.
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.
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.
The assigned risks pool (ARP)
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.
How does a firm enter the ARP?
If you're unable to obtain insurance on the open market:
- read the ARP entry procedure;
- download a copy of the agreement for entry into the ARP; and
- send your completed agreement to the ARP manager.
You'll need to enclose with the agreement a cheque for £1,000 plus applicable 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.
ARP - What happens next?
After your firm has been accepted into the assigned risk pool (ARP), ICAEW will arrange for a practice review to:
- help your firm identify the reason(s) why it could not obtain cover;
- recommend actions to help your firm obtain insurance cover in the open market;
- provide insurers with information to assist in assessing the underwriting risk and to set the final premium.
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.
How long can a firm remain in the ARP?
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.
Can the firm leave the ARP?
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.
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.
Information for firms completing their annual return online
Guidance on PII to help firms as they complete their annual return online.
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