Nicole Lazarz Graham, Esq. Aon Risk Consultant
Selecting insurance coverage for your CPA firm can be a daunting task. Finding an insurance broker or insurance agent to help you, who understands your business and associated risks can be even more challenging. This article provides you with 3 fundamental tips on how to vet and select a broker best suited to address the unique needs of your firm.
1. Find a broker who knows the accounting profession
A broker who has experience working with CPA firms also has the ability to serve as a trusted advisor, just as CPAs do for their clients. A broker should understand your business and the accounting profession and be able to deliver insights and advice to help you protect your firm and grow your business.
Professional service firms purchase many types of liability insurance policies that are designed to protect the interests of the business and its owners. These include general liability, professional liability, cyber liability, employment practices, and directors and officers insurance. Many CPAs render services in multiple states and increasingly operate internationally. Additionally, there are state licensure requirements, and the profession is governed by extensive laws, regulations, and codes of conduct. These considerations can generate unique insurance needs for CPA firms.
A skilled insurance broker or agent should be able to identify and procure professional liability coverage applicable to the services performed by or on behalf of your firm and related entities and be available to explain policy exclusions that may apply to certain services, such as investment advice or trustee services, or how firms may take advantage of policy benefits or available premium credits.
Additionally, since CPA firms have access to extensive confidential client information, both personal and business-related, cyber criminals often target CPA firms due to their access to such information. Cyber liability insurance for privacy breaches and the costs associated with complying with local, state, federal, and international laws in the event of a breach varies widely and continues to evolve in the marketplace. Some cyber policies have coverage for ransomware or phishing attacks while others do not. Retaining a broker who understands the profession, your business and the current cyber insurance marketplace can help you find an appropriate policy to respond to these evolving risks.
More and more CPA firms are utilizing employees and independent contractors to render services in multiple states. Federal, state, and local employment laws vary, as do employment liability exposures, such as wage and hour claims, allegations of discrimination, harassment, and a hostile work environment. A broker familiar with evolving workplace exposures can help you protect your business and build a resilient workforce by finding a solution designed for your employment practice needs.
Directors and officers liability policies offer protection to shield the personal assets of CPA firm owners from lawsuits arising from their actions related to their ownership of the firm. These lawsuits can arise from disputes over ownership, capital contributions, retirement, and merger and acquisition activity. Because CPA firms are typically established as limited liability companies or partnerships, policies providing protection to CPA owners require terms different from those marketed to other types of companies. A broker that understands how a CPA firm is managed will better understand the differences in policy language and can help your firm obtain the appropriate type of management liability coverage for the owners of the firm.
2. Find a broker who has access to the quality solution lines and markets
It is important for CPA firms to partner with insurance brokers that employ professionals experienced in serving the accounting profession, and with access to multiple markets, including international insurers and insurance exchanges. A broker’s understanding of the profession and expertise in analyzing insurer experience and capability, as well as policy forms are essential when creating sound risk transfer solutions for the firm.
To help you identify, measure, and manage your risk exposure, a skilled insurance broker should have adequate resources at their disposal to connect with specialists in other types of insurance, access up-to-date claim data from carrier partners, and be able to offer information on the current state of the applicable insurance marketplace.
A broker should also have the capacity to assist you in addressing insurance needs you identify beyond just liability coverage. For example, you may find that members of your firm want life insurance policies to fund the purchase of an owner’s interest in the firm. Or your firm may seek advice on other employee benefits, such as health, short- or long-term disability, retirement savings plans, or workers compensation. Look for an insurance broker who at the very least can connect you with other professionals in their orbit that can assist you with your insurance needs and provide a holistic approach to your risk transfer arsenal.
Understanding how similar CPA firms approach their coverage can help you make informed decisions about your own firm’s insurance. Your insurance broker should be able to provide you with current benchmarking data indicating the level and types of coverage that your peer firms maintain.
A competent broker should, likewise, know the current insurance marketplace. Insurers can enter and exit the market based upon their loss experience and/or risk appetite. This can result in inconsistent claim and risk management services and even reductions in coverage from year to year. Therefore, it’s important to find a broker who knows which insurers have a long-term commitment to the profession and with the experience to craft policies and coverage to fit the unique needs of your firm. Your broker should be familiar with those insurance providers that can provide both primary and excess coverage.
3. Find a broker who can provide additional risk mitigation resources
A relationship with a broker shouldn’t only be transactional - procuring insurance is only half of the game. You also need a broker who can help you proactively identify, measure, and manage your risk before a claim arises and triggers coverage. Therefore, when vetting a broker, ask whether they have experience advising CPA firms on mitigating risk unique to your firm. Your broker should likewise be accessible so you can check in with them periodically throughout the year and help you assess how changes in business might affect your risk and coverage. Make sure experienced risk advisors working with your broker are available to deliver insights and advice to give your firm the clarity and confidence to make sound business decisions. Among other things, a risk advisor should be able to assist your firm with mitigation efforts including providing access to resources related to engagement letters, client acceptance/continuance and disengagement, cybersecurity, client communications, documentation, and employment liability considerations. Risk advisors can also provide claim/litigation management consultation and facilitate communications with the insurer during the claim process. Your firm should also be able to consult confidentially with qualified professionals prior to considering a merger or acquisition (with other CPA firms or private equity firms) or when entering a new client industry or practice area. This can help mitigate risks and identify potential insurance considerations and costs before undertaking a proposed plan of action. Having such resources available to your firm at no extra cost is invaluable and can better prepare your firm to manage any challenges or risk exposures.
To learn more about professional liability, cyber and employment practices liability insurance for CPA firms and why you may need it, contact the team at AICPA Member Insurance Programs. Our licensed professionals would be happy to answer any questions you have.
Nicole Lazarz Graham is a licensed attorney and risk consultant providing services to Aon’s CPA firm clients to assist with the mitigation of professional liability risks. Prior to joining Aon, Nicole defended CPAs and CPA firms in professional liability actions.