Accounting firm insurance is a necessary evil that every professional accountancy firm must have else, settle in limbo. Accounting firms in recent time are adding more business line to their range of services making their business risk exposure increase at an exponential rate. The traditional business lines of auditing and consulting with narrowed focus was large enough to see many start-up accounting firms liquidate as a result of not having adequate insurance to cover the level of professional exposure. It is suicidal to have a financial service firm without having one form of PI insurance or the other in place.
Professional liability of accountants is an inherent business risk that cannot be taken away from the business other than transferring it to the professional risk takers with the right buffer to cushion the weight of the potential liability, outsourcing services will not remove the professional risk. This is where the issue lays, finding the right insurance company and quote to suit the need of the professional firm of certified accountants. This article is written with the sole aim of giving busy professional finance people tips on how to select the right professional liability indemnity broker. Before delving into the discussion of steps to getting high quality insurance deal for your money, let us quickly establish a working definition and explanation of what the theme of this article is.
WHAT IS ACCOUNTING PROFESSIONAL INDEMNITY (PI) BROKER?
An accounting professional indemnity broker is a professional risk manager that covers accountants from losses that might arise in their normal course of business. The main duty of the indemnity broker depending on the type of policy you subscribe to will re-instate the clients to their normal financial status if any financial loss is incurred as a result of the action of the professional accountant that they are dealing with. In today’s complex business world, many clients don’t consider engaging the service of an accounting firm if they do not have adequate insurance cover for their risk exposure.
WHAT TO LOOK FOR IN YOUR SEARCH FOR ACCOUNTING FIRM INSURANCE COMPANY
Below are the seven factors that you must consider before locking into the fine prints of insurance contract.
THE CLIENTELE DATABASE OF THE INSURANCE BROKER
It might be practically impossible for you to have access to the full database of your PI broker you are considering, but, they will be more than happy to parade some of their best clients if they have just to entice you. It is only those mushroom PI brokers that would frown at you if you request to have a glance at their existing customer database. Refusal to tell you who their clients are might be a signal of bad things ahead, depending on other circumstances. You can even approach their existing customers just to find out how they have been treated in the past.
HISTORY OF REDEEMED INSURANCE CLAIMS
It is normal for you ask for a proof that they actually meet up with their claims. This information might not be available but, only on rare occasions. It could be that the company is just starting or that the sector that they cover is relatively risk free. If the later is the case and you are in that sector, it will be wise for you to reconsider taking up an insurance policy- act with caution.
CAPITAL BASE AND DEPTH OF INVESTMENT
It is a business crime to entrust your risk management to some an entity that is smaller than the risk you expect it to assume. The surest way of getting an insight into the financial capacity of an insurance entity is to review their financial statements in the bid to ascertain what their financial muscle is. You may also want to consider their source of finance to see if it is sustainable in the future.
QUALITY OF STAFF
Garbage-in-garbage-out (GIGO) is a one of the numerous sensible expressions in computer science that is worth giving full attention when shopping for your PI insurance. The members of the board of management of a company cannot give what they do not have. Are they professional actuary practitioners or just desperate marketers?
PUBLIC RELATIONS OF THE FIRM
Have a brief consideration of what people say about the company. The immediate environment of a business is a great place to get useful information that supports decision making.
Investigate the quality of internal control and corporate governance within the company. A strong evidence of poor or lack of good governance is enough signal that requires serious appraisal.
COMPLIANCE TO TRIVIAL LEGAL REQUIREMENT
Businesses cannot be separated from legal requirements of all sorts. This is even more complex and rigorous in the insurance industry. An insurance firm that does not have the right mix of lawyers with vast knowledge in insurance laws should not be chosen. Search for those trivial legal requirements in the industry to see if they are observed.
STEPS THAT MUST BE TAKEN BEFORE SIGNING AN ACCOUNTANT INSURANCE CONTRACT
Do your home work: the right place to start any form of evaluation is from within, start by taking stock of what is at stake in your professional practice. It will be a waste of resources if a firm of chartered accountants with net worth of £5,000 takes up an insurance policy of £10,000. Many different kinds of insurance policies might be needed as accountants are exposed to different types of risks. However, there are brokerage companies that allow you to tailor your coverage package to your needs.
When you are done with figuring out what the net-worth of your company as a going concern is, the next logical thing to do will be to attempt quantifying the collective maximum potential risks that might arise while discharging your professional duty.
The next thing to do at this stage is to compare the premium of different insurance companies that you can place at par using your personal situation. Make sure you are not paying too much for the good name of the broker chose. Brokerage firms are fond of demanding high premium for the reputation once built.
This article on choosing an accounting firm professional insurance indemnity broker will not be complete if attention to common mistake that people make as far as signing of contract is concerned. A lot of people do not bother to invest little time in reading the contract for service before signing it. You will be surprised to know that over 84% of people that sign contracts do no deem it fit to read the content of the agreement. They often rely on what the marketing officers told them. I have once entered into a contractual agreement with an internet service provider with the high hopes that I have stoke a deal judging by what the marketer told me while selling the package to me. I tried to raise a legal action but was shown the content of the document that I signed. Do not make such mistake! Read, read, and read the insurance policy agreement before appending your beautiful signature on that accounting firm insurance contract.