Financial professionals, such as accountants, tax preparers, and bookkeepers, truly hold a unique position regarding client trust. In many situations, money is an individual’s or organization’s most important asset.
At the same time, many individuals and organizations lack investment and advanced financial literacy skills. As a result, these clients rely on their accountants even more, and the increased pressure underscores the need for professional liability insurance for accountants.
Curiously, roughly the same dynamic is in place among financial professionals, because these people are good with calculations but not terribly adept in business insurance matters. Chances are, the accounting insurance in place is limited to personal injury-type physical accidents. Such plans are necessary but incomplete, because simply, financial professionals have so much more to lose.
Protection Available
In a nutshell, professional liability insurance for accountants protects against professional errors and omissions. Many accountants bristle at the suggestion that they need such insurance, since they understandably pride themselves on their meticulous and careful natures.
But consider the following scenarios:
- It’s tax time, and in addition to your normal clients, you agree to handle a colleague’s overflow work. In the last-minute rush, a return is filed late, without a necessary supporting form, or with an incomplete supporting schedule.
- Instead of one document or spreadsheet, a client provides you with reams of information from different sources and in different formats. As a result, some of the figures are lost in translation.
- You hire some additional support staff, and you figure out too late that the new employee does not share your attention to detail and commitment to top client service.
All these situations could cost the client thousands of dollars, and if the client looks for someone to blame, there is a good chance that scrutiny will fall on the financial professional in charge of the matter.
Even if the claim is dismissed straightaway – and that outcome is very unlikely, given the relatively low evidentiary showing required at this point – a claim could cost upwards of $12,000 in legal fees, just in the preliminary stages.
Obviously, if the claim is even somewhat meritorious, the cost including legal fees and settlement expenses will be exponentially higher.
Insurance for Accountants and Cost
Accounting firm insurance premiums depend almost entirely on risk. In the accounting field, that generally means the volume and type of business.
Most all financial professionals do a high volume of work in a rather short amount of time, whether it be at the end of the month, end of the quarter, end of the fiscal year, or during reporting season. So, at first blush, one might expect premiums to be rather high, because we are all prone to make mistakes in pressure-packed environments.
But this schedule has lots of down time built in, so there is ample opportunity to review what worked and what didn’t work, so the accountant’s work methods are continually refined. As a result, there is less risk.
The type of clientele also helps determine E&O insurance rates for accountants. Some financial professionals – such as tax preparers – trade on their reputation for results, such as large refunds. But despite the temptations, most financial professionals stick to proven methods, and they let the results fall where they may.
As a result, the average yearly professional liability insurance for accountants premium is about $600, which is a very small investment in your company’s financial stability, not to mention your peace of mind.
What to do before You Shop
We all know that caution reduces the chances of a claim and therefore lowers accounting insurance premiums. Before beginning serious discussions with an accounting firm insurance agent, here are some protocols which need to be in place, because the agent will almost certainly ask questions in these areas:
- Never take a job on a handshake, regardless of your relationship with the client. The writing should also be specific in terms of work to be performed, timeline, and general expectations. Finally, the compensation should roughly line up with the amount of work and risk involved.
- Carefully screen employees and partners, especially in terms of their financial health. Keep in mind that a claim might not arise until several years after the work is complete.
- Know your limitations. Asking for help is never a sign of weakness, and refusing to make such a request because of professional pride or whatever is always a sign of foolhardiness.
- Communicate, communicate, communicate. Never leave the client in the dark, whether you have good news or bad news.
Perhaps most significantly, find a professional liability insurance for accountants broker who has considerable experience in both the industry and your geographic area. In this way, you can be assured that you’re getting the best policy for the best price.
Emily Basic is a partner and affiliate manager for Embroker, an insurance brokerage popular among tech-savvy accountants. The company couples technology with top-tier service from some of the best brokers in the industry to reduce time, cost, stress, and opaqueness around business insurance, including professional liability, cyber, etc.