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.

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:

• The required minimum level of indemnity
• The allowable amount of self-insured excess
• Approved insurers who can provide the coverage
• 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.

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.

Summary of changes

The key changes effective from 1 September 2024 are as follows:

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.

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.

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 self-insured 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.

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 threshold. This not only increases transparency but it sets out clearer expectations to the firm on the importance of ensuring adequate insurance is in place. This in turn supports the public interest and increases protection for consumers.

5. Group Arrangements (regulation 3.9)                                               

The new regulation, which replaces the previous "compound firm" Regulation 3.8, clarifies how multiple firms can be treated as a single entity under the PII Regulations. It allows them to be insured together under one policy and provides clear guidelines on when and how to use group insurance arrangements. The Regulation ensures that coverage is adequate for all entities involved, increasing transparency and consistency. This update addresses feedback that the old regulation did not align with the reality of how firms were insured, making the regulation more practical and suitable for today's insurance market.

6. Run-off cover and cessation of practice (regulation 2.7 and 2.8)      

The regulations have been updated to refer to “all reasonable steps” rather than “best endeavours”. This was a result of feedback received during the consultation that the previous wording was confusing and open to interpretation. This change emphasises that firms must ensure run-off cover for six years after they stop practising, making the expectations clearer and more straightforward.

7. Dispensations (regulation 5.3)                                                               

The guidance on dispensations has been updated to include a fee for firms making a dispensations application. The update makes it clear that the PII Committee can impose conditions when granting an exemption or waiver. This change enhances transparency by showing that conditions may be attached to dispensations. Additionally, references to the Republic of Ireland have been removed to align with ICAEW’s Statement on Engaging in Public Practice, which was updated after Brexit. These amendments clarify the regulations and ensure they are consistent with ICAEW’s practising certificate requirements.

 

Timeline of Changes

The new regulations came into effect on 1 September 2024, although the changes will be introduced gradually, giving firms time to adjust. This ensure that firms do not have to arrange mid-term adjustment to their existing policies of insurance or policies with pre-existing dispensation.

During this transitional period, the updated requirements regarding minimum insurance limits and excesses will only apply when a firm renews its insurance policy after 1 September 2024. This means that firms will not be immediately impacted by the new rules but will need to comply when their current insurance comes up for renewal. However, at all times firms must maintain their existing policy of qualifying insurance. By 1 September 2025 all firms will need to fully comply with the new regulations, regardless of their renewal date. This phased approach is designed to make the transition smoother and allow firms ample time to prepare.

To ensure a seamless transition, we strongly encourage firms to have discussions with their insurance brokers about these upcoming changes. It’s important to understand how the new rules might impact their coverage and what additional information might be required for renewing their policies for the 2024/2025 period. By planning ahead, firms can avoid gaps in coverage, higher costs, or non-compliance with new regulations. Proactive steps ensure a smooth transition and help meet the updated requirements without delays.

further information

If you have any questions regarding this blog, please contact Manvir Grewal or Julie Matheson in our Regulatory team.

 

about the authors

Manvir is a trainee solicitor at Kingsley Napley. She is currently in her third seat with the Public Law team. Her first seat was in the Real Estate and her second seat was in the Regulatory team.

Julie is a partner in the Regulatory Team. Her expertise lies in advising professionals and professional services firms, particularly in the accountancy, audit and built environment sectors, on regulatory compliance, investigations and enforcement proceedings, including a focus on sexual misconduct in the workplace issues.