It's easy to see why many accountants join professional bodies like the Chartered Institute of Management Accountants (CIMA). But did you know that before you can sign up, you have to get some CIMA insurance?
Being a member of an organisation like CIMA proves you're on top of your game. It also reassures your clients that your work complies with the highest ethical and professional standards.
Part of those high standards means having CIMA professional indemnity insurance (PI). It protects your business by paying for an expert solicitor to defend you and covering any damages if an unhappy client claims your mistake or poor work cost them money.
Here's what CIMA has to say about it.
Who should your CIMA insurance cover?
It may sound obvious, but if you're a sole practitioner with no other employees, CIMA says your PI should be in your name, including any trading names.
However, if you’re a practice employee, your insurance policy must name every practicing partner or principal in your firm. This is so your policy covers all members of the firm.
How much CIMA professional indemnity insurance do you need?
Unlike other professional bodies for accountants, CIMA isn't fussy. It doesn't specify a minimum level of cover, or insist on you using a particular insurer. It just wants you to have some insurance.
Although ultimately you'll have to decide how much cover to opt for, CIMA offers some useful advice .
It recommends asking an insurer or broker about the best level of cover. As an independent broker ourselves, we'd say at least 2.5 times your annual fee income is a good place to start. The more the better, frankly.
Consider your clients
When assessing your insurance needs, CIMA recommends giving some thought to your clients. It's a simple and effective way of minimising your risk of a claim.
Thinking about the following may help identify if your client carries a higher-than-average risk of triggering a claim:
- How much of your client's involvement will you need to complete a project? Is their co-operation going to be difficult to get?
- Will your client suffer substantial losses if their accounts are poorly handled? If so, they may be more likely to pursue legal action against you.
- How credible is your client, and how well do they handle their own affairs? Could there be pre-existing issues with their accounts that might affect your work?
- What does your client do? Individuals in 'rich' industries may be more likely to claim than those in other industries.
Do you need to cover past work?
That's because professional indemnity insurance operates on a 'claims made' basis. It means that, for a claim to be covered, you must have insurance both at the time of the claim and when doing the work.
Don't forget that work carried out in the past isn't exempt from causing a claim. In fact, it can sometimes take months, or even years, for problems in your work to become apparent.
Handily, retroactive cover extends your insurance backwards to a date in the past, before you actually took out the policy. For example, many companies like to backdate their cover to when they first started trading.
Run-off cover is professional indemnity insurance for accountants who've retired, or for firms that have stopped trading. As they're no longer taking on new work, the risk of a claim is slightly lower, although there could still be a claim for work carried out in the past. Run-off cover picks up that risk.
CIMA's final requirement is that you tell it about your insurance. After renewing your policy each year, you must update your details online with your CIMA account. CIMA do check with insurers that the details it has are both current and accurate.
If you'd like more information on CIMA and its insurance requirements, we recommend visiting its website or calling 0208 849 2251.
If you have any questions about CIMA professional indemnity insurance, feel free to give us a call on 0345 222 5360.accountantsclaimsmanaging riskretroactive coverrules and regulationsrun-off cover