Foundations of accountants professional indemnity insurance – a primer

Professional indemnity insurance

Professional indemnity insurance helps protect firms from liabilities that may arise while providing professional services. It is also known as professional liability insurance or errors and omissions insurance.

These terms are often abbreviated to:

• PI (Professional Indemnity)
• PII (Professional Indemnity Insurance)
• PL (Professional Liability)
• E&O (Errors and Omissions)

The risks

Professional indemnity insurance covers accounting firms against the risk of legal action from clients, customers, investors or other parties for alleged errors, negligence, omissions or deficiencies in the supply of professional services.

Some areas of accounting firm services that may give rise to a claim include:

1. Failure to identify fraud, with the laws around responsibility and consequences varying by jurisdiction.
2. Errors in tax filings or failure to recognize obligations.
3. Breach of fiduciary duty in the delivery of services.

Evolving areas of risk include:

• Software Design and Implementation
• Regulatory Reporting Obligations
• Application of Artificial Intelligence

One unique aspect of the accounting industry is the variety of services provided, typically classified as audit, tax, consulting, and advisory services or more broadly as attest and non-attest.

Some non-attest services, like tax, can have high frequency, but low value, claims. Conversely, claims arising from attest services may be less frequent but tend to have higher severity levels in costs and settlements or judgements.

Attest services are relied upon by a variety of parties including clients, investors, and lenders. Allegations related to attest services can therefore potentially cause financial loss to a wide group of stakeholders, and this area has a long history of litigation and sizable claims payments.

The policy

Professional indemnity policies provide coverage for claims arising from acts, errors and omissions relating to the provision of professional services, referred to in some policies as wrongful acts.

These products indemnify the insured entity for financial costs incurred while defending claims and covered settlements or judgements.

Due to the range of services offered by accounting firms, a variety of claims can arise. For this reason, coverage is provided on a broad form basis rather than specifically identifying the range of covered activities or claims sources. The insurance market has historically provided responsive policy wordings.

This coverage is not standardized and varies between countries. Comprehensive cover is sometimes mandated by local professional or regulatory bodies. Depending upon the insurance market being accessed, firms may be able to select the policy that best aligns with their needs and risk profile. Care may be required when expanding services into the advisory area.

Risk management

The amount of professional indemnity being purchased is a risk management decision for the firm. Firms should consider regulatory and jurisdictional requirements, the risk climate, litigation environment, and contractual obligations to clients.

This is combined with the firm’s own risk appetite and tolerance and its financial resources. Reputational issues could arise if insufficient insurance is in place should a large loss occur.

Earlier Professional Service Practice at Aon insurance series discuss Risk Retention and Enterprise Risk Management.

The Professional Services Practice at Aon values your feedback. To discuss any of the topics raised in this article, please contact Huxley Anjilvel.

This article is adapted from Foundations of Accountants Professional Indemnity Insurance – A Primer (April 2025) from the Professional Services Practice at Aon.