The crucial role gross fees play in professional indemnity insurance quotes
When it comes to renewing or taking out new professional indemnity insurance, it is important to understand the crucial role your gross fees play when insurers calculate your quotes, as it could cost you more if done incorrectly or save you cash when done right.
When putting together your financial information for insurers, understanding what to include – and what not to include – will save you time and money. Below is a summary of what insurers will and won’t need from you:
Include |
Do not include |
All professional fees of the firm including remuneration |
Work in progress |
Retained commissions |
Reimbursement of disbursements |
Any other income – including notarial fees |
Value added tax (VAT) |
|
Remuneration from a non-private practice source |
|
Interest |
|
Dividends |
|
Rents |
|
Investment profit |
For accountants, it is very important to make sure that the gross fees for the financial year disclosed are accurate as this is what your premium will be based on and will also be used to calculate the limit of indemnity you require.
ACCA’s limit of indemnity requirements vary depending on fee income and your largest single fee.
A common error we see when a firm is completing their proposal form is with regards to advising the firm's net assets. We often see firms entering gross assets and current liabilities, without deducting any amount due to creditors or any other provision for liabilities required.
Firms should be aware of this as it can influence the financial position portrayed to insurers.
We also recommend providing a copy of your latest report and accounts when submitting the renewal presentation as this will ensure we are able to portray the appropriate gross fee values to insurers. Providing a copy of the firm's report and accounts can also add value to your renewal presentation as it helps insurers understand the firm's financial stability. Insurers are now beginning to apply this as a standard subjectivity when putting forward quotations, so providing this in the first instance saves any back and forth and streamlines the renewal journey.
For start-up accountants, insurers will look to calculate the premium based on the estimated gross fees that the firm will be looking to generate for the next 12 months.
Insurers and their actuaries use various factors to calculate premiums and one key factor is the firm's gross fees figure.
It is important to put in the correct gross fee figure. Including extra sources of income could disproportionally inflate the overall gross fee income and result in insurers putting forward quotes that take into account that increased figure.
Furthermore, every firm has an ongoing duty to make a fair presentation of their risk to insurers under the Insurance Act 2015, so they should give due care and attention to ensuring the correct figures are presented.
For further information on how gross fees can impact your professional indemnity insurance, contact your Lockton representative, Daniel Vien at Daniel.Vien@lockton.com.
In partnership with Lockton, ACCA is running a series of webinars on risk. The first one, on anti-money laundering and the risk to your insurance cover, is now available on demand.
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