When it comes to your firm’s malpractice insurance, it pays to shop around.
All professional liability policies are not the same, according to Ken Mackunis, executive vice president of Aon Affinity and program manager for the AICPA Professional Liability Insurance Program. When examining a policy, it is important to consider the full program, he indicated, including its commitment around claims services, underwriting, eligibility and its investment in resources to help advise firms.
Differences in coverage are particularly seen in cyber-exposure, Mackunis indicated. “A standard policy will provide some degree of coverage. In this case, the insured has to be sensitive to how it affects professional liability limits,” he said. The second way is by endorsement. “There may be an additional premium for this, but it gives the policyholder a choice to add to the policy, and address concerns. The third way is to buy a separate, standalone cyber policy that is built to address particular exposures.”
(For more details on policy coverage, see our 2016 Buyer's Guide to Malpractice Coverage.)
Firms of all sizes continue to be plagued by ransomware, according to Camico loss prevention executive Randy Werner, CPA, Esq. “It enters computer systems via a clicked hyperlink or attachment or a typed password,” she said. “Ransomware encrypts all files and demands the payment of ransom to decrypt the files. A major problem is that paying the ransom is no guarantee that the cybercriminal will actually decrypt the files.”
“Cyber insurance coverage should include risk and legal advisory services to guide investigations, ensure compliance with the laws that apply, and protect confidential communications and information,” she added.
“Social engineering has everyone’s attention,” agreed Kyle Nieman, president of AmerInst Professional Services. “These types of claims are starting to come to accounting firms and law firms. Be aware of scams out there where the perpetrator contacts the CPA firm to send funds somewhere. Make sure that the firm has protocols in place to validate the legitimacy of these requests.”
As more CPAs are retiring and selling their practices, they need to understand the options they need for insurance coverage in the future. “The practitioner who is selling needs to purchase an extended reporting period, to cover any claims that may come in the future. And the buyer should also make sure that the seller has done this to make sure they’re not picking up any liability for the practice they’ve just purchased,” Nieman said.
“We still see more claims arising out of tax matters than any other area of practice,” said Kim Stone-Vilim, program manager at All Risks Ltd. “But the largest amount of liability continues to be in audit.”
Phishing schemes involving CPA firms are becoming more sophisticated, according to Stone-Vilim. “Many of them now include a text message number that the recipient believes will verify the claim. The CPA needs to pick up the phone and make a personal call to the client to verify any request that funds be sent,” she said.
“Professional liability risk for CPAs is ever-evolving, and with the unusual exposure created by increased use of technology and expansion of professional services, the insurance industry is striving to keep pace,” observed Ricard Jorgensen, president of Jorgensen & Co. “We have added an enhanced cyber endorsement,” among other enhancements.
“For a long time, there was the perception that CPA firms were not the target for cyber breaches,” said John Raspante, director of risk management for liability insurance broker NAPLIA (North American Professional Liability Insurance Agency). “There was the attitude that, ‘Oh, we’ll think about it, maybe our policy provides some protection.’ But last tax season, several hit the news, so they’re starting to be a little more on the radar screen.”
THE FINE PRINT
The majority of CPAs think that all policies are the same, Raspante indicated, but it could take a partner or firm administrator as many as six weeks to do a thorough job of evaluating different policies. “The last thing you want is to buy a policy and think you have $2 million in coverage, but find out that if a claim arises from a publicly traded company the coverage is only $1 million. You have to actually read the 36- or 40-page policy. “
Ron Parisi, CPA, Esq., a former liability insurance company executive and a CPA risk management and liability consultant, agreed. “While many base policies work similarly, it is important to match your firm risks to the coverage. Carriers are often willing to endorse — expand or change — coverage for your specific risks.” And it is crucial to review exclusions in the policy, he warned: “For example, the policy might exclude CFO services, claims resulting from suing clients for unpaid fees, and back-office services where professionals have check-writing abilities.”
“More carriers are entering into the accountants liability space,” he said. “But buyers should be wary of carriers without extensive accounting liability experience. It is important that your carrier be able to bring expert resources when you have an issue. An experienced claims adjuster, attorney and litigation expert can make a big difference.”
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