Professional Indemnity Insurance

Why is Professional Indemnity Insurance (PII) required by CIMA?

Increased consumer awareness of the rights and the remedies available if loss or damage is suffered due to the negligence of others has had an impact on the provision of professional services in recent years.

Many Members in Practice will complete their professional lives without experiencing a claim, but the probability of this happening at some point has increased. Clients are also now more likely to insist that practitioners carry Professional Indemnity Insurance as a prerequisite for conducting business with them.

Although it might be possible for practitioners to absorb a limited number of small claims, to rely solely on professional expertise is inadvisable. It is important to remember that when a claim is brought by a dissatisfied client it has to be defended even if it does not succeed. The costs of defending such a claim, whether made with malicious intention or not, can be substantial and potentially result in bankruptcy.

The reputation of CIMA’s Members in Practice in general may be affected adversely by the failure of a few to obtain the necessary PII to cover work, which could be deficient either by negligence, by lack of competence or by oversight.

CIMA therefore believes that, for the protection of individual Registered Members in Practice and for the protection of the Institute’s reputation in the practice field (which impacts on all Members in Practice) it should be mandatory for Professional Indemnity Insurance to be carried by practitioners.

Council Regulation 7.5.1

Council Regulation 7.5.1 states:

‘Members are required to conduct themselves in accordance with the Laws of the Institute and to:

(i) hold an appropriate level of professional indemnity insurance;
(ii) provide written terms of engagement for clients;
(iii) ensure continuity of the work of their practice in the event of illness, disability, or death;
(iv) undertake continuing professional development in accordance with the requirements of the institute; and
(v) make provisions for internal complaints handling procedures in their practice;

and are required to provide confirmation of the above on registration and renewal of registration, and evidence of the above when applying for the Practising Certificate.’

Assessing your requirement for PII

To assess your requirement for PII you should evaluate all your clients according to:

• the instructions you have received or agreed and the extent of the co-operation required from the client to complete any task(s) efficiently and to time;
• the potential for loss to a client as a result of the practitioner (you) handling their affairs unsatisfactorily or incompetently;
• the quality of the accounting, financial and management control systems operating within the client’s business;
• the credibility of the client’s handling of his own affairs;
• the nature of the client’s business and its continued viability.

This process may identify a client who, for whatever reason, represents a higher than average PII risk. It should not follow automatically from this that the client is dropped. However you will need to ensure that you have in place quality administrative and management procedures that mitigate the risk to your business.

Having determined the extent of the need for PII, you should assess the amount and breadth of the protection required. In addition to personal cover for you as a principal, director or sole practitioner, cover may also be needed for other practice staff (including sub-contractors and consultants) and all the practice’s activities (including those undertaken with other practices).

In order to make your assessment, you are strongly recommended to:

• take expert advice from a PII provider as to how much cover is available and at what cost;
• seek to quantify personal exposure/the practice’s exposure to risk;
• assess whether the anticipated protection is sufficient to meet potential claims and is consistent with that of similar firms by using available sources (e.g. the insurance broker);
• establish the extent to which claims can be met from the practice’s resources (i.e. the availability of both personal and practice assets to meet claims);
• consider carefully the need for run-off cover - cover which will operate for a defined period after the practitioner has ceased to practice (including retirement).

Procedures for identifying and monitoring claims

It is within the power of a Member in Practice to limit the damage from any existing or potential claims and to ensure that the chance of a future claim is significantly reduced.

In order to limit the damage from any existing or potential claims, the practitioner should:

• regularly provide information to practice staff as appropriate and discuss this in order that matters which might lead to a claim can be identified;
• establish procedures for notifying claims to their insurer so that their insurance arrangements remain valid;
• assess on a planned basis the progress of any claims;
• use, as appropriate, the services of an expert adviser (insurance and/or legal).

Good office practice in communicating and relaying information and in following established administrative systems and control procedures can minimise the risk of experiencing a claim.

Please note that you are free to choose an insurance provider of your own choice. There are a number of brokers that operate suitable schemes for CIMA Members in Practice; these brokers are aware of the kind of work that you might undertake, and fix cover and premium rates accordingly.

You may, however, wish to consider getting a quote for the Professional Indemnity Insurance Scheme as part of your Member Professional Benefits.