Today's market for professional liability insurance is similar to markets in other industries in that it reflects the changes that the profession is undergoing. As the profession evolves, so does the market.
"As the CPA profession evolves and new services are offered, it makes for different risks," explained Candace Coach, small firms sales manager at Aon, the manager for the AICPA Professional Liability Insurance program.
Among the factors to consider when shopping for a policy, she advises the prospective purchaser to consider whether the insurance carrier has the financial stability to take on the risk.
"For some carriers, the risk is too large, leading them to exit the market," she said. "For example, we haven't seen any claims yet for the beneficial ownership filing requirements, but it could result in large claims down the road. We are one of the only carriers that offer coverage for this; however, some CPA firms will go ahead and offer these services and assume they are covered."
Coach anticipates that claims will be coming in as a result of firms offering services for BOI filing.
"We don't know what the claims will look like, but there are specific guidelines that have to be followed, which could result in exorbitant fines assessed against the filer," she said. "Clients will be looking to the CPA to pick up the fee or the fine. As far as the market is concerned, some carriers will feel as though it is best for them to non-renew certain policies, and exit the market altogether and downsize to less risky professional services."
Prospective buyers should look for "premium modifiers" that can lower the cost of a policy. These include claims-free history, continuing education and various types of "best practices."
The liability market is softening up a little, according to Stephen Vono, senior vice president at McGowanPro, a professional liability insurance provider.
"It's still somewhat of a hard market in large metropolitan areas," he said. "A hard market is when there is a lot of claim activity and premiums go up. In a soft market there is less claim activity and premiums go down. It depends on the kind of services that are offered. Cyber is a little on the hard side, but it is beginning to see some softening because insurers have become better at underwriting guidelines in the last few years."
"You should look for a carrier with an AM Best rating of 'A' or better," said John Raspante, CPA, senior risk manager at McGowanPro. "It's also best to get a carrier that has been in the space for at least five years. If they're in it for five years or more, they're familiar with the types of claims, policy limits and other factors that might affect the decision."
"In pricing a policy, they look at a number of factors," he explained. "These include total revenue, loss history, number of staff, and areas of practice. Always look at 'outside the policy' options. If you have a million-dollar policy, legal expenses can exceed that very quickly, so it might be a good idea to get an extra million, just for legal and defense costs. A traditional policy is inside the limit. If you have a $1 million policy, $250,000 in legal fees will reduce the limit to $750,000. So I recommend an outside-the-limit policy to cover legal and defense expenses, to preserve the underlying $1 million. It does cost more, but I recommend a buyer to go for the outside-the-limit addition if the difference in premium is not significant."
Although it may not be particularly entertaining, it's important to actually read the policy, Raspante urged.
"You need to read the policy, especially the endorsements," he said. "They either weaken or toughen the policy. If it says that in addition to the underlying coverage it will also apply to employment practice, that increases the insurer's exposure. It may throw in a sublimit for nonprofessional liability exposure that doesn't cover the full limit — that's why you need to read the whole policy. When you get close to the end, it looks like a lot of legalese, but you have to read the entire document. For example, on the last page there might be a service exclusion for international work, which means that anything outside the U.S. is not covered."
A panel of experts put together by McGowanPro's Vono, which includes underwriter Gary Sutherland; Hanover Insurance risk manager Anthony Carolei; and CPA defense attorney Ralph Picardi, recommends the following factors to consider when assessing liability policies:
- Make sure the professional services definition is as broad as possible.
- Does the broker or insurance company understand what you do?
- Consider if your limits are sufficient, as legal defense costs are going up.
- Is your deductible appropriate? If you have a large deductible, will you struggle to pay that deductible in the event of a claim?
- Does the broker or insurance company provide supportive risk management services and education?
- Do not rely on your professional liability insurance policy to be the coverage for all your exposure. There are exposures that are better covered on a separate standalone insurance policy. Separate directors & officers liability insurance and separate cyber liability, employment practices liability, commercial crime, and fiduciary liability policies should be considered to cover all exposures for your firm.
The panel also shared some
