Selecting the correct limit of indemnity for your practice

When it comes to assessing your professional indemnity arrangements and selecting the right limit, there are several key factors to consider. These include your regulatory body, client base and any potential exposures your practice may face.

It’s worth reviewing your arrangements throughout the year, not just at renewal, especially if you are venturing into a new area or taking on more work. This will ensure that you are adhering to your regulatory obligations.

To help you establish the appropriate level of cover, you should consider the following factors during your assessment:

• your regulatory body’s regulations. ACCA has minimum insurance requirements that each member must adhere to
• how long your business has been established, including any predecessor firms
• historical claims – these can provide insight to potential future claims, especially if there are any identifiable trends
• the maximum potential value of a single claim – this will be influenced by the largest transaction values undertaken
• the total potential value of a series of related claims
• your likely exposure to claims – this is influenced by the practice areas undertaken and your typical clients. For example, corporate finance work and corporation tax tend to incur higher claims payments
• any activities that could expose your practice to risk, including the nature and level of undertakings accepted
• the possibility of a claim being made against you in every department
• if the work is ongoing or on a one-off basis
• the maximum potential exposure of the client and other interested parties. Although a claim would naturally include the core financial loss to the claimant, the settlement may extend to claimants’ costs in addition
• itigation costs could be significant and these would be included within any claim payment that is made.

Another important consideration is your client base. Some clients, such as local authorities and lenders, may ask for higher limits on certain transactions. Larger client contracts involving sums greater than the compulsory primary indemnity limits need to be carefully reviewed. If you decide that upcoming work potentially creates a higher-than-average risk, additional premium for top-up insurance needs to be factored into your decision about whether you accept the retainer.

Taking the above into consideration will help you avoid an uninsured loss. The purpose of your insurance policy is to transfer risk and for insurers to pay claims, so ideally, your liability as a practice should be limited to the policy excess (deductible) that you have selected.

If you have any questions on your policy, please contact our team, who will be more than happy to assist with any queries you may have.

Muazzez Acar Cert CII – Account Executive, Lockton Companies LLP

If you have any questions about professional indemnity insurance, please contact your Lockton Account Manager for further advice or email ACCAaccountants@uk.lockton.com.

Lockton is ACCA’s recommended broker for professional indemnity insurance