New ICAEW PII Regulations

Published: Wednesday, 19 June 2024

Make sure that your next policy is compliant

Professional indemnity insurance requirements have been updated for ICAEW firms

Last year the ICAEW asked accountants, insurers, brokers and other professionals to input on proposed changes to their Professional Indemnity insurance requirements. After considering the feedback, the ICAEW have issued updated PII regulations.

The main changes that come into effect from 1 September 2024 are:

• The minimum limit of indemnity will increase from £1.5m to £2m.
• For firms with gross fee income below £800,000, the limit must be 2.5 times the firm’s income, with a minimum of £250,000 (this is an increase from £100,000).
• Larger firms with gross fee income over £50m will not be required to put in place ‘qualifying insurance’ but must have in place appropriate arrangements, which will be monitored. (Currently this approach is available to firms with 50+ principals).
• For firms requiring qualifying insurance , the maximum aggregate excess on the policy should not exceed the higher of £3,000 or 3% of a firm’s gross fee income.
• Firms insuring in a group arrangement can be treated as a single entity for the purpose of the PII regulations, providing that they meet certain criteria.
• Members and firms should use ‘all reasonable steps’ to arrange run-off cover when closing the business. Firms are still required to have cover for two years but must take reasonable steps to ensure cover is in place for a further four years.
• The guidance relating to dispensations has been updated and a fee will be introduced for firms making an application.

Run off cover expansion proposal dropped

The Institute proposed some radical changes to run-off cover, borrowing from the approach taken by the SRA for the legal profession. Under these, Insurers would be obliged to provide automatic run-off cover for a six year period after closure and, more controversially, this would need to be given even where the premium is not paid.

The negative response received from Insurers, some of whom commented that they would leave the market if this became a requirement, resulted in the proposals being dropped.

With continuing consolidation of accountancy firms, run-off cover is a more commonplace need and, until products evolve, arranging this by an annual or 18 month policy will remain the approach.

What will these PII rule changes mean for chartered accountants?

The increase in the minimum level of cover required is a prudent move. Professional negligence claims are commonplace and economic uncertainties mean that current trends are likely to continue.

Legal defence costs involved in a claim are also rising, with many law firms having increased their charge out rates post pandemic. Some Insurer report that legal defence costs involved with PII claims are typically 40% – 45% of PII claim settlements eroding the net compensation payable to the claimant.

Smaller practices currently buying the £1.5m minimum cover will need to increase protection from their next renewal, starting 1 September 2024.

The excess change may also, in some cases, be used by Insurers to justify increased premiums.

Larger practices already purchasing limits above the Institute minimum are likely to see little premium impact from the changes.

Do I need to speak with my broker with respect to my policy?

Yes, speak with your broker to determine whether these changes will affect you and, if so, to make sure that your policy is compliant with the new requirements.

Rosie Ali
Account Executive, Ntegrity

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