Insurance for Accountants and Bookkeepers

Whether you provide day to day recording of transactions for your customers as a Bookkeeper, help them with their Business Activity Statements as a BAS Agent, help your customer as their accountant or perhaps you provide a more bespoke service to your customers with Business Advisory. We can help you understand risk in your business and provide you with insurance solutions.

PROFESSIONAL INDEMNITY INSURANCE

Accountants, Tax Agents and Bookkeepers all require Professional Indemnity Insurance (Also known as Professional Liability Insurance or PI) to protect you from allegations of incorrect advice, failure in your services or your professional conduct. Whilst most accountants will have a Professional Indemnity insurance limit of $2 Million which is the minimum set by CPA, some BAS Agents and Bookkeepers will have the minimal limit of $250,000. When considering the level of cover you need you should first consider the size of your customers that you service. An accountant who specialises in SME or Small Family Business is likely to require a smaller limit of indemnity compared to an accountant who is servicing Franchise Groups or Retail Chains.

Some Professional Indemnity policies might also include Public Liability or General Liability for the business too. If your Accounting or Bookkeeping firm leases a commercial property or office space, your lease will often dictate to you how much Liability Insurance they require you to have in place. For many accounting and bookkeeping firms this is typically a minimum of $10 Million.

Example of a Professional Indemnity Claim for an Accountant

Incorrect Tax Advice
A client alleged that their income tax returns their Accountant had prepared, were incorrect. As a result, they suffered a loss through additional taxation and sought reimbursement of $120,000.

The Accountant was able to claim indemnity under their policy.

Creditors of a business in administration seek compensation
Creditors of a construction company sought compensation from an accountant who signed forms for a licensing authority to confirm that the builder did not hold sufficient equity to renew their building license on the grounds of insufficient assets. The creditors sought compensation as they alleged the accountant should have informed the licensing authority sooner than they had and as a result the creditors incurred losses that they would not have if the authority had been advised sooner.

The creditors claim against the accountant exceeded the accountant’s Professional Indemnity Limit of Indemnity which was at the time of the claim $2 Million.

Undervalued Assets for Taxation
An accountant assisted their customer in arranging a valuation through a third party for the sale of assets to determine the tax liability. The accountant helped the customer arranged multiple valuations, each through different valuers and proceeded with the lowest valuation in order to reduce the tax liability disregarding the other two valuations they had received. The customer was audited following the sale of the asset and found to have underpaid their taxation as the valuation relied upon was incorrect.

The customer sought compensation from the accountant for their additional taxation and costs that resulted from the audit, resulting in a claim against the accountant for over $900,000.

What to look out for when Arranging professional indemnity Insurance

CLAIMS MADE COVER

Professional Indemnity insurance policies are claims made policies. This means that you must advise the insurer of the claim, or, circumstances that might later become a claim in the policy period when you first become aware of the circumstance or claim. Whilst some solicitors might advise their customers not to tell their insurer about a situation until it proceeds to court, that they might be able to settle and make the issue go away, if they dont tell their insurer before the policy renews, or worse, if they change insurers without telling both the old and the new insurer, they may find themselves without any cover.

This becomes problematic for larger organisations with lots of employees or multiple directors where one person might be aware of a circumstance and haven’t yet told their employer or their fellow directors and so the situation isn’t disclosed at renewal of their policy.

There are solutions to ensure that you have continuous cover enabling you to have an extended reporting period and we have the broking knowledge to help you arrange cover that is right for your firm. If you have a unique scenario you would like to talk through, call us on 1300 429 707 and ask to speak with one of our Professional Indemnity insurance broking specialists.

RETROACTIVE PERIOD

Your retroactive period shown on your insurance policy is the date from which you can claim for events or work that you have performed in the past. The Retroactive Date is shown on all Professional Indemnity insurance policy schedules and should be shown on all quotes. It is common to see “unlimited” or “without limitation” or the date that the company was first formed on a Professional Indemnity policy as the Retroactive Date; in these policies, a new circumstance or new claim for work that could have been done years ago would still be covered by the new policy if it occurred after that retroactive date and was first claimed in the new policy period.

However, sometimes a very cheap policy can be arranged for a firm where the quote shows ‘inception’ of the first day of the policy period as the Retroactive Date. What this in effect means is that any work or circumstances that occurred prior to that retroactive date will not be covered, even if the claim is first made in the new policy period. The new insurer is able to make their policy very cheap by reducing the cover to only new work that has been done or occurred in the current policy period, and, where the claim is also first made in that new policy period too.

Not sure what cover you have or would like a professional review of your cover? Call us on 1300 429 707 or contact us to arrange your review.

MANAGEMENT LIABILITY INSURANCE

Whilst your professional indemnity insurance is intended to cover your services that you provide to your customers, a Management Liability policy is more inwardly focused on protecting your directors, their personal assets, and the company against allegations of misconduct in how the company operates within the legal framework, such as OH&S, employment law, trade practices and corporations law.

A Management Liability policy helps protect directors and the business in defending against allegations of misconduct. This type of insurance becomes increasingly important as a firm grows, as bringing in managers and partners to help the firm grow will often also expose the firm to additional management risks.

BUSINESS AND OFFICE INSURANCE

A business insurance package or office insurance package is often required to supplement the Professional Indemnity (PI) package for most Accounting and Bookkeeping Firms. The PI policy might cover public liability however it usually will not cover any of your equipment or stock for damage through fire, storm, malicious damage or theft.

For smaller businesses where you might be working from home, it will be important for you to check with your home insurer to let them know that you are running a business from home and to see whether that policy will cover equipment owned by your business that you have at your home. In most cases the policy will only provide very limited cover and often will not cover any loss of income to your business as a result of damage or theft at your home.

The loss of income cover within a business package is often overlooked by accounting and bookkeeping professionals who see themselves as not restricted to a particular business premise, but, what if there is a short term restriction like the NSW April 2015 or Feb 2020 storms, or the South Australia Oct 2016 storms which all saw a majority of homes and businesses without power in significant areas across the state.

Can you operate your business without power or would it result in lost income and potentially lost customers if you cannot respond to their needs during that time?

CRIME AND FRAUD (FIDELITY)

Professional Indemnity insurance policies may protect the firm for fraud that has occurred by an employee or contractor resulting in theft of customers goods, however, they often dont protect the accounting firm or bookkeeping firm for theft of their own equipment, money, or assets as a result of Fraud. Whilst a business may be able to take steps to reduce the chance of fraud impacting their business, theft by trusted employees or contractors does happen. A crime or fidelity policy can provide protection for this as can a Management Liability policy too.

CYBER CRIME AND CYBER LIABILITY

In some cases, the fraud may be committed by a criminal through online activity such as changing banking details on an invoice or emailing a customer of yours pretending to be you. These activities are considered by some insurers as Cyber Crime.

These activities along with many more Cyber Crime activities such as your computer systems or websites being held for Ransom. These events can often be insured through a decent Cyber Risks policy.

This type of insurance is equally important to you as it will be to your customer. A business insurance policy doesn't cover loss or damage arising from Viruses, Trojans, Hacking or most other cyber crimes. That's where a Cyber Crime and Cyber Liability policy comes in. A Cyber Crime policy generally has three parts.

  1. Cyber Crime cover for your Assets.

    • This part of the policy responds to the damage to hardware or software assets as the result of a cyber breach. Whether this is the costs of unlocking or replacing a machine locked by cryptolocker, regaining access to your website after it is hacked, or unlocking and recovering data from hardware that has been stolen or lost.

  2. Loss of Income following cyber crime.

    • The loss of income section of a Cyber policy is as the name suggests. The consequential loss of income or extra costs incurred by a business following that Cyber Breach. This extra cover is not typically included when you take a "Cyber Extension" within your Professional Indemnity Cover or Management Liability cover. It is only available with selected insurers.

    • As most accountants and BAS Agents rely on access to the taxation portal and accounting software, often cloud based, to manage their customers accounts, having your network taken offline or held to ransom can have a significant impact on cashflow particularly if your customers are forced to seek support from another accountant or BAS agent in order to make their lodgements on time whilst you are trying to recover your systems and network access.

  3. Cyber Liability

    • A cyber breach into any network usually involves a breach of data or a loss of data. If this data belongs to someone else, such as a customer of yours, it can result in you being liable for whatever costs are incurred by that customer as a result of that breach.

    • In Australia we also have strict privacy laws that extend to customer data. A breach of customers data can also result in fines or penalties. This is another reason to take the Cyber Liability cover as part of your Cyber Insurance protection.