Embroker’s Accounting Practice
Redefining the way accounting firms purchase insurance, utilizing technology and deep insurance expertise from brokers who genuinely understand the industry.
Insurance for Accountants
Accountants are a logical, straight-forward set of professionals critical to our economy who produce financial reports, review tax documents, and audit other accountants’ work. The scope of services provided by Certified Public Accountant (CPA) firms has grown immensely over the last few years. But no matter how good you are at your job and how much experience you have, any logical accountant knows mistakes are bound to occur.
When a deadline is missed, a tax law misapplied, or a fraud goes uncovered, it’s not pleasant. At best, these issues result in a distraction and are likely to involve legal fees. One step further can easily result in legal actions against you coming from the clients, investors, or other third parties that have been negatively affected by your error.
That’s why smart CPA’s and their accounting firms are always covered by the right insurance policies that protect them from these types of situations. Whether you or someone in your firm makes a mistake in the course of providing professional services, insurance can help make sure that your personal assets are properly protected.
We wrote this guide to help you, the reader, understand both the basics of insurance for accountants as well as some more advanced considerations. Our hope is that you walk away from this article a more empowered buyer, with a better understanding of the risk you can transfer to other parties via the right insurance coverage.
Our highly experienced insurance experts will work with you to gain a deep understanding of your unique needs before negotiating a customized policy on your behalf. For more clarity on pricing, your business will be benchmarked against similar firms and accountants in your vertical.
Why Do Accountants Need Insurance?
In today’s litigious environment, it’s incredibly easy for an agitated client, investor, or other outsiders to file suit against an accountant or any other advisor. Any professional associated with watching risk for CPA firms can tell you countless stories of firms providing good work, sticking to the scope of their engagement letter, and still getting hit with a costly professional liability claim.
CPA firms, tax advisors, and even bookkeepers get hit frequently with claims. The tax laws are constantly changing and the expectation of the client is such that errors are not readily acceptable. During difficult financial times when people lose money on investments, they are quick to look for ways to recoup their losses, and blaming the accountant for mistakes is sadly one of those methods. With the bar being set so high, it’s pretty easy to see why claims are alleged against CPA firms so frequently.
The very nature of being a CPA or any professional advisor exposes you to the risk of malpractice claims. Running your firm, servicing your clients, trying to get new clients, and tending to your daily life are time-consuming enough, can you imagine the added burden of a malpractice suit, even if your work product was rock solid? Regardless of the complexity of the claim, these suits require legal fees, document production, lost billable hours and precious energy consumed instead of serving your clients and growing your business.
A high-quality insurance program produced by a knowledgeable broker eases the burden of a malpractice claim.
For decades now, accountants professional liability policies have experienced tax issues as the most frequently reported claims and audit issues as the most severe. In recent years, carriers have seen an uptick on matters relating to trust and estate work, along with general consulting.
Malpractice claims related to auditing are often the result of an accountant’s failure to detect fraud. While your engagement letter may waive the accountant’s responsibility to detect fraud, clients and investors will certainly claim otherwise and if investors have lost money, the engagement letter scope doesn’t always hold up.
Also, with older generations transferring wealth to younger family members, with millions of dollars at stake, it’s easy to see how CPAs who are acting as trusted advisor and are right in the middle of the action can be susceptible to various claims. Family members who believe assets were not well tended to or were dispersed inaccurately will not hesitate to find a plaintiff attorney to bring suit against the accountant trustee.
In recent years clients adding technology and the accountants’ involvement adds a new level of exposure. Your scope of work becomes more complex as you look to advise on the proper usage of the latest accounting software. Most accounting entries are not manual entries anymore but are the subject of multiple users from varying inputs, as the case is with cloud technology.
The other natural exposure to risk via technology is the risk hacks, cybercrime, theft of personal information, theft of trade secrets, and other technology exposures. This article spends a majority of time talking about professional risk, but cyber risk must be addressed as well, preferably via a stand-alone policy.
And in the end, no matter what the reason for the damages are, accountants and professional advisors could easily be blamed in an effort to recover damages to the client or other third parties.
What Insurance Policies Do Accounting Firms Need?
While every accounting firm potentially has a specific set of insurance needs, depending on its size and a variety of other factors, there are certain insurance policies that most should consider to be mandatory parts of their business insurance program:
Professional Liability Insurance: Know by some as accountants professional liability malpractice or errors & omissions (E&O) insurance, this is easily the most important and vital type of insurance that all accounting firms will need to have. This insurance policy will be able to cover most of the legal costs, discovery costs, and damages associated with claims against you or your employees in the course of providing accounting services. A good broker can guide you towards broader policies which effectively cover the accounting firm for anything you do for a fee or that enures to the benefit of the firm.
No matter whether you are a bookkeeper, CPA, or large accounting firm, you need professional liability insurance, because any mistake or aggravated client can potentially turn into a lawsuit.
General Liability Insurance & Property / Business Owners Policy (BOP): A staple coverage that will be able to protect you from most types of lawsuits, general liability insurance includes the very important premises liability, which covers injuries that could possibly occur on your property. General liability is often minimal for accounting firms since almost all business is conducted in the office and most communication with clients is handled via telephone and email. Property insurance covers your personal property including computer hardware and furniture. This policy provides protection in the event of a fire, flood, or other unexpected circumstances which affect the building, your property, and your ability to work. General liability and property are often combined into a Business Owners Policy (BOP).
Employment Practices Liability Insurance (EPLI): The need for this coverage grows in concert with the size of your firm. As the accounting firm adds employees, the issues become more complex and the personalities involved are less predictable, giving the need for EPLI coverage.
EPLI insurance will protect your accounting firm from potential employee-related claims, including discrimination, harassment, failure to promote, and wrongful termination. Professional services firms are also strongly encouraged to get third-party coverage to protect against claims coming from outside the firm, such as claims made by clients.
Workers’ Compensation: Since this type of commercial insurance is required in just about every state, there’s not much to think about – your accounting firm needs to have it. Thankfully, workers’ compensation probably won’t cost your accounting firm a lot, since an office is not a high-risk workplace. However, accidents will always happen and workers’ compensation will cover your firm if your employees ever sustain any type of injury at work (whether it’s at your office or anywhere else they may be representing your firm in a professional capacity.
Cyber Liability Insurance: Accounting firms deal with a lot of sensitive information and often transfer funds, so it’s no surprise that they are constantly being targeted by hackers. CPAs act as the trusted advisors to some firms, adding on registered investment advisory arms for their clients’ funds. Hackers today are well-trained and are patient enough to watch over your email traffic and attack at just the right time. Or if they are impatient, many have no problem launching a ransomware attack or cyber extortion virus onto your system, both of which could paralyze your firm.
Highly-Publicized Examples of Insurance at Work for Accountants
- Former NBA star Kevin Garnett sued Louisville accountant Michael Wertheim and his firm Welenken CPAs for malpractice, breach of fiduciary duty, and aiding and abetting.
See: Former basketball star Kevin Garnett sues Louisville accounting firm
- Accounting firm Cherry Bekaert was added as a defendant and sued for malpractice in a federal lawsuit filed by real estate veteran Steve Brincefield in a case that blamed real estate company Thalhimer’s top brass and others for depleting the value of its employee stock ownership plan.
See: Accounting firm entangled in Thalhimer lawsuit
- The Federal Deposit Insurance Corp sued a global public accounting firm for $625 million in compensation for the bank’s alleged net losses from fraud with mortgage originator Taylor Bean and Whitaker.
See: PwC faces largest ever auditor malpractice damages verdict
- Former certified public accountant Carl Nicholson was accused of 11 federal tax-related charges and is facing up to 35 years in prison and fines of up to $2,750,000 if convicted.
See: Trial begins for former Hattiesburg CPA Carl Nicholson
Accounting Insurance Costs
When applying for accounting insurance, there are many things that carriers are going to be taking into consideration when trying to arrive at a price for the coverage that you need. The leading drivers of cost are revenue over three years, areas of practice, geography, and claims history.
Once the above key drivers are taken into consideration the premium is fine-tuned based on digging further into your areas of practice (bookkeeping, audit, valuations, etc.), risk management (engagement letters, suits for fees), and insurance limits you want to purchase.
Not sure if you’re getting a fair deal?
A frequent question we hear — and a common problem with insurance underwriting in general — is that no one really knows how an underwriter arrives at a premium.
Embroker believes in giving our clients better choices using data and transparency. We benchmark all of your policies against similar firms/accountants in your vertical, then procure multiple quotes from an independent broker. We also cross-reference your costs with firms of comparable size, policy limits, claims history, and risk tolerance.
Once set up on our platform, our tools and data ensure you’re adequately covered, even as market conditions change and your business grows.
Accounting professionals require unique insuring expertise and experience. Embroker helps you get the best coverage at the best price, and we start a simple audit of your current policies. Beyond that, we also offer advice on risk management challenges such as loss control and risk financing.