After reviewing the existing PII Regulations and consulting on a range of proposals, ICAEW is making some changes to its requirements. We have set out responses to some FAQs below to help you understand the changes and assess whether you will need to make changes to your firm’s professional indemnity insurance. PII is compulsory for all ICAEW members who have a practising certificate and are engaged in public practice, regardless of the amount of practice income.
Preparing for the changes
Have the new PII Regulations been published? Where can I find them?
The new PII Regulations will take effect from 1 September 2024 and are available on the ICAEW website.
How can you prepare for the changes to the regulations?
We suggest you check your existing policy, identify the renewal date and act well in advance of that date.
In view of the changes, it’s more important than ever to engage early with your broker to identify if any changes will need to be made to your existing policy, work out the relevant level of cover you're going to need, as well as carrying out the usual risk assessment.
We’re encouraging firms to keep a record of their assessment of the adequacy of their cover and associated decisions, and to have that document available during their routine monitoring visits.
Your broker will be able to guide you through the changes during your renewal process, but if you need any further help, call ICAEW's technical advice line on +44 (0) 1908 248 250 or use our live web chat.
Is there a list of participating insurers available?
Yes, the list of our participating insurers is always available on ICAEW’s website.
If you are unsure about any aspect of the compliance of your policy, you can also get in touch with our technical advice line on +44 (0) 1908 248 250.
Small firms
How will the changes in minimum cover affect smaller firms with a lower fee income?
For firms turning over less than £800,000 a year, you calculate your minimum limit of indemnity by taking your gross fee income and multiplying it by 2.5. However, there is now an absolute minimum of £250,000 (up from £100,000).
We know most of our firms already have more cover than the new minimum requirement, but it’s important to check your policy and see if you will need to increase your cover.
We understand that pricing and availability are hugely important to all firms, and are a particular concern for some small firms. So, we have engaged with representatives of the insurance market and brokers, and the feedback we've had is that insurance should be available, and the cost should not be prohibitive.
Based on this feedback, we are confident the changes we are carrying forward should not have a significant effect on premiums overall.
There are fixed costs incurred by insurers when issuing policies. So, even though the amount of cover is increasing from £100,000 or £250,000, our understanding from insurers is that the price does not necessarily increase proportionately with that amount of insurance cover. For example, ICAEW’s insurance partners under the member rewards scheme have confirmed to us that for firms who are required to increase their cover from £100,000 to £250,000 under the changes, there will not be an increase in premium.
If you have any questions or concerns, please speak with your broker or insurer early in the renewal process to explore your options.
My firm is small, and I’ve never had a claim, so why is a minimum of £250,000 cover now necessary?
The market has seen the value of claims, even on the smaller side, increase in recent years due to inflation and other economic and social factors.
While it might seem to you that it’s extremely unlikely you will have a claim, it can happen to any firm. If it should happen, it will be very reassuring to have sufficient cover and we believe the new levels better reflect likely claims and associated costs.
Do I have to use a broker to find PII cover?
You don’t have to use a broker. But brokers will search the market for you and can discuss your specific requirements. They will be able to guide you through the process, explain the changes and ensure your cover is appropriate to your needs.
Calculating cover
How to calculate the minimum amount of cover for group entities.
Firms that wish to be treated as a single entity under the regulations and choose to insure more than one firm under the same insurance policy, can combine each individual firm’s fees to calculate the total gross fee income for the structure or group.
This can be used to determine the minimum limit of indemnity and maximum permitted excess for the group’s policy.
It is the fee income across the group that counts when calculating these amounts. Inter-company/group transfers should not be counted for the purposes of this calculation.
There are further details within our guidance, please refer to regulation 3.9.
If you still have questions about the calculation of gross fee income, contact our technical advice line on +44 (0) 1908 248 250.
What period should be used to calculate gross fee income?
Within the regulations, there is a detailed explanation of what we mean by gross fee income.
At a high level, we mean the fees from the most recently completed accounting year. There might be situations where that's not readily available, for example the first year of trading or if the most recently completed financial period was more than a year.
The guidance in the regulations expands on this, so check this based on your circumstances. In most cases, it will be the most recently completed accounting period.
Run-off cover
What are the requirements for run-off cover for a sole practitioner?
If you’re a sole practitioner and you retire or stop working, that would effectively count as a firm ceasing, so you would need the mandatory two years. Then you must take ‘all reasonable steps’ to arrange cover for a further four years. Previously the requirement was to use your ‘best endeavours’ to arrange that extra cover, but we have changed this to underline the importance of getting appropriate run-off cover.
What’s required if a partner leaves a firm?
Every member is required to take all reasonable steps to ensure they are covered by arrangements that comply with ICAEW's PII Regulations.
When a practitioner changes practice, either by moving between firms or leaving a partnership to become a sole practitioner, it is very important that insurance cover is in place for their historic work. This can be achieved in several ways:
- cover may be available for former principals in the old practice
- as a separate standalone policy
- in some circumstances the new firm’s insurance may provide cover for work done at the previous firm
- as a last resort, in the assigned risks pool.
It is the member's responsibility to ensure that this element of the cover is in place. Often, when a partner leaves, that will be met by the partnership’s existing policy but it's important to check that policy and confirm this.
What is the availability of run-off cover?
As part of the minimum terms, insurers are obliged to make an offer of at least two years of run-off cover when a firm ceases. So, all firms will be able to receive an offer of two years’ cover. Then, in terms of getting the rest, it may be that insurers offer that on an annual basis, rather than a block.
The feedback that we received from insurers is that run-off cover is readily available, so we’d encourage firms to speak with their brokers and ask them to have a full search of the market.
Is run-off cover needed for the full six years, even if you limit in the terms of engagement that claims are made within three years?
Yes. There's a general limitation period for claims of six years, which is why we specify that six-year period.
Your broker will be best placed to advise you on the amount of cover and what's appropriate for your firm's needs.
The claims process
What’s the typical process when a claim comes in?
If you receive a claim (or become aware of a circumstance that may give rise to a claim) you should notify your insurer as soon as you can. If you use a broker, they will usually do this for you.
The insurer will usually assist your firm in dealing with the claim. If the claim reaches a level of seriousness that requires the appointment of lawyers, then your insurer will instruct a law firm to get involved and help both insurers and the firm in defending or resolving the claim.
Market impact
Have insurers seen and commented on the changes to ICAEW’s regulations?
We have engaged with our participating insurers throughout this process, including listening to their responses to the public consultation.
When we met with some of them after finalising the changes, their feedback was that the changes we have decided to take forward are sensible, and they are supportive of them.
They also told us that there's a good availability of cover in the market at a reasonable price for accountants.
Will ICAEW monitor the changes and their impact on the market, and on firms?
Yes, we will continue to monitor the market once the changes come into effect and keep the situation under review.
One of the key roles of the PII Committee is to keep abreast of what is happening in the insurance market. The committee will continue to stay in close contact with insurers, brokers and firms and will particularly monitor the impact of this latest package of reforms.
Who sits on the PII Committee?
The PII Committee oversees ICAEW’s PII requirements for members and firms. It must have at least four members (a mix of lay and accountant), and at least three people must be present at its meetings.
Currently the committee has nine members whose experience of interacting with insurance comes from different perspectives. These include members from differently configured and sized accountancy practices, experts from insurance brokers and insurers, and three lawyers experienced in dealing with insurance disputes.
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