For some accounting firms, 2024 was a robust year. New clients. Additional staff. More comprehensive services offered.
For others, 2025 may be the year their firm reaches new heights.
Whether your practice has expanded in the last few years or is on the cusp of doing so, it’s essential to ensure your insurance coverage keeps pace. Professional liability insurance, cybersecurity insurance, and other business-related coverage play a critical role in protecting your firm’s financial health, reputation, and long-term success.
Why You Need to Review Insurance Coverage as Your Firm Grows
As your accounting practice evolves, so too does your risk exposure. Growing firms often take on larger clients, handle more sensitive data, expand service offerings, or hire more employees. While there is opportunity in growth, there are also unforeseen challenges, such as the potential for more legal claims and data breaches.
Failing to update your insurance policies can leave your firm underinsured or improperly covered, potentially leading to devastating financial consequences.
Here is an overview of what your firm’s principals should review as you expand.
1. Professional Liability Insurance (Errors and Omissions Insurance)
Professional liability insurance covers claims made against your firm for mistakes or omissions in the services you provide. This includes errors in tax preparation, audits, or financial reporting. As you offer a wider array of services to more clients, your risk exposure increase. It’s important to ensure your coverage limits are adequate.
What to Look For:
- Increased Coverage Limits: The increased size and complexity of potential claims should prompt you to ensure your policy limits reflect the scale of your operations.
- Service Expansion: If you’ve added new services (e.g., advisory or consulting), verify that these are covered under your policy. Some firms may need to expand their coverage to include specialized services.
- Claims History: Work with your insurer or broker to review any past claims or claims made against similar firms. If you’re seeing an uptick in claims or more complex allegations, it might be time to upgrade your coverage.
- Subcontractor and Third-Party Risks: If you outsource any work or rely on third-party vendors for specific services, make sure those relationships are accounted for in your coverage. Errors in subcontracted work could result in claims against your firm.
2. Cybersecurity Insurance
Cyberattacks are an increasing threat, particularly to accounting firms due to the sensitive financial data they handle. Cybersecurity insurance helps protect your practice in the event of data breaches, ransomware attacks, or other cyber-related incidents. The larger your firm, the greater your cybersecurity risk, making it essential to review and potentially upgrade your coverage.
What to Look For:
- Data Breach Coverage: Ensure that your policy includes protection against data breaches, which may involve client financial information, tax returns, or other confidential documents.
- Ransomware Coverage: With the rise in ransomware attacks, it’s critical to have a policy that covers the costs associated with data restoration, ransom payments, and the recovery of lost business.
- Business Interruption Coverage: If a cyberattack causes your firm to lose access to critical systems or data for a period of time, business interruption coverage helps to compensate for lost income and operational costs.
- Third-Party Risks: Ensure your policy covers incidents involving third-party vendors or clients, as you may be held liable for a breach stemming from a partner or external contractor.
- Employee Training: Some cybersecurity policies include provisions for employee training programs, which can be an essential part of mitigating risk. Be sure to take advantage of these resources.
3. Employment Practices Liability Insurance
Employment practices liability insurance (EPLI) helps protect your business from employment-related legal claims such as wrongful termination, discrimination, and harassment. A policy will help cover the cost of legal fees incurred while defending against an employment claim, as well as any judgements or settlements. This type of coverage can be added as an endorsement to a business owner's policy or written as a standalone policy.
What to Look For:
- Coverage Limits: Small accounting firms may be tempted to save money by choosing a low coverage limit. As you grow, you should strongly consider increasing those limits to account for the higher risk to your firm. Work with your broker to determine the most appropriate limit for the size of your firm. The increased size and complexity of potential claims should prompt you to ensure your policy limits reflect the scale of your operations.
- Are Third Parties Covered: Growing means more customers and the use of more vendors. You are liable for their actions as it relates to your employees. Therefore, your ELPI should cover claims made by your employees against customers, vendors, independent contractors, and business invitees.
- Choice of Counsel: Some policies will enable you to select your own legal counsel in the event of a lawsuit. Others give the insurance company the right to select your defense. If you want to use your own attorney, make sure your policy provides that option.
4. General Liability Insurance
General liability insurance protects your firm against third-party claims of bodily injury, property damage, and other non-professional liabilities that could arise during the course of business. As your firm grows and operates from larger office spaces or adds new locations, your exposure to these types of claims increases.
What to Look For:
- Increased Property Coverage: If you’ve expanded your office space or invested in expensive equipment, ensure your property coverage reflects these changes. This includes office buildings, computers, and other assets.
- Business Operations and Visitors: As your office becomes more frequented by clients or visitors, you should ensure you’re adequately covered for slip-and-fall accidents or other incidents that may happen on your premises.
5. Workers’ Compensation Insurance
Workers’ compensation risks aren’t as prevalent for accountants as, say, commercial fishing. That doesn’t mean you can neglect this coverage. It’s important to ensure your workers’ compensation insurance reflects the changing size and nature of your workforce.
What to Look For:
- Increased Headcount: As you hire more employees, your workers' compensation premiums may increase. However, you also need to ensure that your policy covers all workers adequately, especially if you have a mix of remote and in-office employees.
- Remote and Hybrid Work Coverage: If you’ve transitioned to a hybrid or remote work model, verify that your workers’ compensation policy extends to employees working from home. The laws and requirements around this can vary, so make sure you are working with a reputable insurer that stays up to date with changes in regulations.
6. Business Interruption Insurance
Business interruption insurance provides coverage for lost income if your firm is forced to close or suspend operations due to unforeseen circumstances like natural disasters, fires, or pandemics. As your firm grows, you may rely more heavily on continued business operations, making this coverage increasingly important.
What to Look For:
- Updated Coverage Limits: Ensure the coverage reflects your firm’s current revenue and operational needs. Business interruption can cause significant financial strain, and your policy should help to offset that loss.
- Pandemic and External Crisis Coverage: Review how your business interruption policy responds to events like pandemics, civil unrest, or natural disasters. Some policies may have exclusions, so it’s essential to clarify what’s covered.
How to Ensure Your Firm is Adequately Insured
- Conduct an Annual Insurance Review: Set a regular schedule to review all your insurance policies, especially as you reach significant milestones.
- Work with an Insurance Broker Experienced in Accounting Firms: Engaging an insurance broker who specializes in accounting firms can help you navigate the complexities of insurance and ensure you get the right coverage at the right price. They can also provide insights on industry-specific risks and help you tailor your policies.
- Invest in Risk Management Practices: While insurance is critical, it’s also essential to implement proactive risk management strategies. Regularly train employees on cybersecurity best practices, maintain up-to-date security protocols, and have contingency plans in place for natural disasters or other major disruptions.
- Stay Informed About Industry Trends: Keep up with trends in the accounting profession, such as the increasing use of cloud-based software, changes in data protection regulations, or emerging threats like artificial intelligence (AI)-related risks. This will help you anticipate future risks and adjust your insurance policies accordingly.
- Ensure Clear Communication with Your Insurer: Proactively communicate changes in your firm’s operations to your broker or insurer. They can guide you on the appropriate adjustments needed for adequate coverage.
Get Expert Advice on Business Insurance
TXCPA offers a premier accountant's professional liability insurance program underwritten by top-rated Berkley Select* and comprehensive standalone cyber insurance policies from top providers in the industry. Members get invaluable expert advice, from a local team of brokers led by a CPA, free of charge with every no-obligation quote.
Trustees have expertise in insurance matters and participate in the selection of TXCPA Member Insurance programs. All insurance policies, products, and plans offered to TXCPA members, members’ employees, and members’ families are continually monitored to ensure that they continue to meet the high standards of our trustees.
* Berkley Select, a specialist in professional liability for over 30 years, underwrites on behalf of Berkley member insurance companies that are rated A+ (Superior), Financial Size Category XV, by A.M. Best Company.