Expert Witness Journal Dec 24 - Journal - Page 90
Key Changes to ICAEW Professional
Indemnity Insurance Requirements
In December 2023, the ICAEW Regulatory Board, along with the Professional Indemnity
Insurance Committee (PIIC), began reviewing ICAEW's insurance requirements. A consultation
on the proposed changes was held from 18 October to 14 December 2023. After reviewing the
feedback, the ICAEW has confirmed changes to the Professional Indemnity Insurance (PII) regime
to take effect on 1 September 2024. This blog will explore the PII requirements, a summary of key
changes and their purpose and impact.
PII
PII is mandatory for all ICAEW members who have
a practising certificate and are engaged in public practice, regardless of practice income. The insurance typically covers the entire practising entity, whether you
are a firm or a sole practice. If a practice includes both
ICAEW and non-ICAEW members, the regulations
apply to the whole practice, and the insurance must
cover everyone, not just the ICAEW members.
1, Minimum limit of indemnity (regulation 3.2)
The minimum indemnity limit has increased from
£1.5 million to £2 million. This means that your policy will provide more protection and help avoid financial shortfalls in the event of a claim. In addition,
the regulation has been amended to reflect that this
can be on an any single claim basis or an aggregate
basis, rather than the previous term “in total”. The revised terminology reflects how insurance is commonly
discussed, making the regulations clearer while keeping the practical requirements the same.
PII regulations require that your insurance meets a
minimum coverage level and a maximum allowable
excess. The insurance must be obtained from a participating insurer and comply with approved minimum policy wording. When considering your
insurance, you should consider:
2. Minimum limit of indemnity (regulation 3.3)
For firms earning less than £800k in fees, the
minimum insurance coverage will now be two and a
half times their total income, with a minimum of
£250,000. This is an increase from the previous minimum of £100,000. The change is designed to better
protect against underinsurance and ensure that consumers are adequately covered. Firms should consider whether the limit is sufficient.
l The required minimum level of indemnity
l The allowable amount of self-insured excess
l Approved insurers who can provide the coverage
l Necessary run-off cover
If you hold a practising certificate but do not engage
in public practice, you generally do not need PII unless your firm remains regulated or licensed. However, you should ensure that appropriate run-off cover
is in place for your past work. It is the responsibility of
the members to ensure compliance with PII regulations, however, all firms must take reasonable steps to
meet claims arising from public practice. You should
carefully consider the appropriate level of cover for
you or your firm as the minimum level of cover may
not always be sufficient to cover all potential claims.
3. Gross Fee Income and Policy Excesses
(Regulation 3.7)
The regulation has been amended to reflect changes
to the maximum permitted aggregate excess which is
now the higher of either £3,000 or 3% of a firm’s gross
fee income. This update also changes the way this selfinsured amount is handled, ensuring it acts as an "excess" (an amount paid before insurance covers the
rest) rather than a "deductible" (which could reduce
the total payout). The ‘50 principal rule’ has been replaced and the excess is now linked to fee income
which should reduce the potential for small firms with
a sole principal to have an excess that they may not be
able to pay. This change is intended to simplify interpretation, particularly for smaller firms, and enhance
consumer protection by ensuring firms can manage
claims without undue financial burden.
Firms must also provide details of their insurance and
confirm compliance with these regulations in their
ICAEW annual return. ICAEW may verify this information with brokers or insurers. Failure to complete
the ICAEW annual return could result in serious consequences, including disciplinary action and the withdrawal of regulatory licences. If you cannot obtain
insurance that meets PII regulations, you should immediately contact ICAEW. Temporary emergency
cover may be available through the assigned risks pool
until compliant insurance is secured. It is crucial to act
before your current policy expires to avoid any gaps
in coverage.
4. Large Firms (regulation 3.8)
The is a new regulation which specifies that firms with
gross fee income over £50 million are not required to
arrange qualifying insurance. Instead, they must have
appropriate arrangements in place to cover claims
arising from public practice. Previously, firms with
over 50 principals were exempt from this requirement
due to how deductibles were handled, but this was not
explicitly stated in the PII Regulations. Regulation 3.8
clearly links the exemption to fee income, making it
easier to identify which firms would meet this
Summary of changes
The key changes effective from 1 September 2024 are
as follows:
EXPERT WITNESS JOURNAL
88
DECEMBER 2024
