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How Much PI Insurance Does an Accountant Need?
The amount of insurance an accountant needs depends on whether or not they're a chartered accountant, with which professional body they hold membership and how much they collect in fees. Let's look at how these factors affect the limit of professional indemnity insurance (PII) an accountant needs.
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PII Limits for a Chartered Accountant
Chartered accountants must have a professional indemnity insurance (PII) policy, and this policy must meet certain requirements. For starters, PII for a chartered (or chartered certified) accountant must be considered 'qualifying insurance'. Underwriters issuing qualifying insurance agree to abide by certain minimum terms on accountant PII, to make sure all chartered accounts maintain a certain standard of protection.
Next, chartered accountants have to abide by certain minimum limits of insurance as stipulated by their accountancy body membership (e.g., ICAEW, ACCA). The required amount of professional indemnity dictated by these bodies is linked to fee income (both annual fee income and largest client fee income).
Accountancy Body PII Limits of Insurance
- Minimum PII for ICAEW: £100,000
- Minimum PII for ACCA: £50,000
- BUT many accountancy businesses need to hold more depending on their fees and the work they do.
Let's have a look at the minimum PII requirements as stipulated by the Institute of Chartered Accountants in England and Wales (ICAEW) and the Association of Chartered Certified Accountants (ACCA), since these are the two largest accountancy bodies in the UK.
ICAEW limits of insurance
According to ICAEW, the minimum limit of indemnity on PII for accountants in respect of each and every claim is at least £100,000, but the PII limit will end up being higher than this for any accountancy firm earning more than £600,000 in fees annually or that is an accredited probate firm or involved in insurance distribution. An ICAEW firm's PII requirements ultimately depend upon their activities and annual fee income:
| Total Annual Fee Income | Limit of PII indemnity for each and every claim is greatest of: |
|---|---|
| If the gross fee income of a firm is less than £600,000 |
|
| If the gross fee income of a firm is over £600,000 |
|
| If firm is an accredited probate firm |
|
| If firm participates in insurance distribution activities |
|
ACCA limits of insurance
According to ACCA, the minimum limit of indemnity on PII for accountants is at least £50,000 in respect of each and every claim, but firms earning more than £20,000 in fee income require a higher limit. A firm's requirements ultimately depend upon their annual fee income:
| Total Annual Fee Income | Limit of PII indemnity for each and every claim is greatest of: |
|---|---|
| Up to £200,000 a year |
|
| £200,001 to £700,000 a year |
|
| Over £700,000 |
|
What if You're Not Chartered?
Accountants who are not chartered technically don't have any obligation to buy PII. That said, it is widely recommended for all accountants to have professional indemnity insurance. To figure out how much you need, you can still follow the guidance issued by the ICAEW and ACCA or speak with a specialist broker or agent regarding limits of insurance.
PII Limit of Insurance Tables for Accountants
We've calculated the minimum PII limits for accountants of various sizes according to both the ICAEW and ACCA requirements in the table below. As you can see, we varied both the total annual fees and the largest fees earned from one client in the past year (which factor into the ACCA calculations but no ICAEW calculations).
While these figures show a range of accountancy business sizes, if your business size is not displayed here then you can use the formulas shown in the previous section to calculate what you would need. Use these figures as a rough-and-ready guide to give you an indication of what is basically required; calculating the amount of insurance an accountant needs can certainly be a complicated answer. A professional insurance specialist can help also you figure it out if you still have questions.
Accountancy Examples: Limits of PII indemnity for each and every claim
| Annual Fee Income | Largest Fee Income from One Client | ICAEW PII Minimum Limit per Claim | ACCA PII Minimum Limit per Claim |
|---|---|---|---|
| £25,000 | £2,000 | £100,000 | £62,500 |
| £25,000 | £5,000 | £100,000 | £125,000 |
| £25,000 | £10,000 | £100,000 | £250,000 |
| £50,000 | £5,000 | £125,000 | £125,000 |
| £50,000 | £10,000 | £125,000 | £250,000 |
| £75,000 | £5,000 | £187,500 | £187,500 |
| £75,000 | £10,000 | £187,500 | £250,000 |
| £100,000 | £10,000 | £250,000 | £250,000 |
| £100,000 | £15,000 | £250,000 | £375,000 |
| £200,000 | £20,000 | £500,000 | £500,000 |
| £500,000 | £10,000 | £1,250,000 | £800,000 |
| £500,000 | £50,000 | £1,250,000 | £1,250,000 |
| £1,000,000 | £25,000 | £1,500,000 | £1,000,000 |
| £1,000,000 | £50,000 | £1,500,000 | £1,250,000 |
| £2,000,000 | £50,000 | £1,500,000 | £1,250,000 |
| Plus | |||
| £500,000 for accredited probate activities | |||
| €1,250,000 for any one claim (€1,850,000 in total per annum) for insurance distribution activities | |||
Supporting Links
Here is a list of the main professional bodies in the UK, with links to their professional liability insurance requirements so you can learn more:
| Professional accountancy body | Acronym | Link to information about PII requirements |
|---|---|---|
| Association of Chartered Certified Accountants | ACCA | ACCA professional Indemnity guidance |
| Chartered Institute of Management Accounts | CIMA | CIMA professional Indemnity guidance |
| The Chartered Institute of Public Finance & Accounting | CIPFA | CIPFA professional Indemnity guidance |
| Institute of Chartered Accountants in England and Wales | ICAEW | ICAEW professional Indemnity guidance |
| Institute of Chartered Accountants of Scotland | ICAS | ICAS Professional Indemnity guidance |
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