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Finding The Right Insurance For Accounting Firms

As an accounting professional, you play a crucial role in helping the businesses and individuals you serve to manage their finances properly. However, the sensitive nature of the service you provide means that you’re exposed to a variety of risks. No matter how careful and diligent you are, it’s incredibly common for angry clients or investors to hold accountants liable for mistakes, real or perceived, that they believe have resulted in losses. 

For instance, tax laws are constantly shifting, and it’s possible for oversights to happen. However, clients have high expectations that, since they hired a professional accountant, such errors won’t happen. Additionally, many clients will hold accountants liable if they fail to detect fraud during an audit. While most engagement letters stipulate that it’s not the accountant’s responsibility to detect fraud, clients will often claim to the contrary, and the scope of the letter may not hold up. The most frequent claims that insurers receive from accountants are related to tax issues and audit issues are proving to be the costliest.

In recent years the reliance on technology has added a new level of exposure to the accounting profession. Advising on the proper usage of accounting software means potentially taking on the responsibility for the failures of such software. Hacking attacks and cybercriminals represent additional technological exposures. And while the professional risk is a major concern, accountants should also be prepared for a myriad of cyber risks in 2020 and beyond.

Finally, even if you’ve made no mistakes, dissatisfied clients who’ve suffered damages may end up suing you as a way to recover those damages, regardless of whether or not you truly played a part in their financial mishaps. With client expectations high and a wide variety of exposures lurking, it’s no surprise that claims are alleged against accountants very frequently. 

This is why it’s good practice for individual accountants and accounting firms to manage risk by investing in the right insurance products. If you or an employee of yours commits an oversight while providing professional services or events out of your control lead to damages, having insurance will help ensure that your business can survive the potential financial fallout. 

What Insurance Policies Should Accountants Purchase?

 

Naturally, every firm is unique and has a different set of exposures. However, there are a few insurance policies that most accounting firms should strongly consider adding to their insurance program:

 

E&O Insurance

The most important policy for accounting. errors & omissions insurance – or accountants professional liability malpractice as it’s often referred to – would cover most of the legal costs and damages for any claims that arise from the services that you provide as a professional accountant. This policy is crucial for accounting firms of any size because just one simple mistake or one angry client can result in extremely costly lawsuits that can cost your firm a lot in legal expenses even if you end up winning the case.

 

General Liability Insurance

A basic policy that will protect your company’s physical assets, such as computers, and furniture, from loss. It will also protect you from claims of injury and property damage occurring on your property. If you’re renting property, this policy will typically be required before you can sign the lease.

 

Workers’ Compensation

Accounting is typically seen as a very safe profession, conducted in a low-risk environment. However, even employees working in offices get injured on occasion. If this was to happen, workers’ compensation would respond to cover the required medical care and lost wages. All states, save for Texas, require workers’ comp policies, so purchasing it is typically mandatory for all businesses.

 

Employment Practices Liability Insurance (EPLI)

This policy would respond to most employment-related claims (such as wrongful termination, discrimination, harassment, etc.). Most states don’t require you to carry EPLI and many firms choose to forego this policy to save money. This is especially true for smaller firms and individual accountants.  However, with the increasingly litigious environment and the increasing price of these claims, a good EPLI policy would be a wise investment for any business with employees.

 

Cyber Insurance

Accounting firms store a considerable amount of extremely sensitive client information on computers or in cloud-based accounting software and handle online fund transfers as well. This makes them a juicy target for cybercriminals. A good cyber policy would respond to cover most first-party costs if a  data breach occurred. This includes paying for experts to find out how and why the breach happened, the costs to notify affected clients, and credit monitoring. It will also protect you if your clients sue you for damages suffered in the attack and can potentially cover regulatory fines and penalties that may result from a breach.

 

How Much Does Insurance for Accountants Cost?

 

This is a common question and a complex one to answer. There is a multitude of factors that will need to be taken into consideration by insurance carriers when deriving your premium. The key components of how insurance is priced for accountants are the following:

 

  1. Revenue – Typically an average over the past three years is taken.
  2. AoPs (Areas of Practice) – Bookkeeping, audit, valuations, etc.
  3. Geography – Firms in major metropolitan areas can expect to pay more for insurance.
  4. Claims History – Any claims or lawsuits in the past will affect your premiums negatively in the future, as insurers will fear repeat incidents.
  5. Risk Management Practices – Firms with strong risk management practices (engagement and disengagement letters, suits for fees, etc.) will likely pay lower premiums.

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Marketing mastermind and agent of change, Sean X has been looking into the future where brands, technology, and media intersect—and manipulating the present to get there—for more than two decades.

He led global marketing for Ask.com, oversaw digital strategy for consumer leader Amazon Advertising, established an acquisition engine for the financial arm of American Express, and helped Nike and numerous other brands succeed.

Sean is currently CMO at Embroker, a digital insurance company reinventing how businesses ensure they can take the risks they need to grow.

Sean X Cummings

CMO, Embroker

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