Some insurers and brokers offer insurance cover under Master Policies which have one sum insured for all participants in the policy. This means that you could be sharing this sum insured with as little as 1 or as  many as 1000 people which means there might not any cover left if you need to make a claim because of claims that other people have made.

When considering buying Professional Indemnity insurance or its time to renew your current policy make sure that you are not buying a policy with a shared amount of cover. This means that regardless of the number or the value of Professional Indemnity claims lodged by other people your policy limit is unique to you and is only affected by claims that you make on your policy.

For example a bookkeeper did work for a client in 2007, however it was not until 2010 that the ATO investigated their client for some discrepancies in their activity statements. The ATO and alleges that the bookkeeping has been prepared incorrectly. This is the time that potentially a Professional Indemnity claim may exist and this will be the date the claim is acknowledged, 2010, not when event happened in 2007. Not only does Professional Indemnity cover you for professional negligence, it also covers defence costs to defend any legal action bought against you and any costs associated with an official enquiry or investigation.

Policies can include the follow cover:

• Professional Negligence

• Wrongful Act

• Breaches of  Legislation

• Fidelity (misappropriation of your money by staff member)

• Defence Costs in addition to sums insured

• Advancement of defence cost

• Libel/Slander/ Defamation

• Lost Documents

• Dishonesty and Fraudulent Activities of your employees/contractors

• Retroactive Cover-Covers you for all past work provided that you have had continuous Professional Indemnity insurance

• Run off cover ( extended reporting period ) after you sell the business or cease operations.

• Estates heirs and legal representative

• Former Principles, Employees and Contractors.

When considering buying Professional Indemnity insurance consult an Insurance Broker for advice as they have experience in arranging this type of insurance and are best placed to negotiate the cover you need at the most competitive price.

These questions are aimed to provide you with the information to know the answers and be comfortable with what you are getting!

 1.                 Does the policy cover every aspect of your bookkeeping/consulting business?

 It needs to include that you provide all aspects of bookkeeping work from set up and install of accounting software and systems, both manual and computerised. 

Setup may include debtors, creditors, stock, chart of accounts and payroll.  It needs to include that you provide processing services being everything from entering invoices and payments into the system, performing payroll calculations and making payments. 

It needs to include that you may set up the format of sales invoices and then create invoices. 

It must include that you perform bookkeeping reconciliation duties in relation to bank accounts, loan accounts, credit cards, petty cash, inter company loan accounts. 

It must include that you perform end of month or quarter reporting work including provision of information that may be used for preparation of the business Activity Statements. 

It must include that you provide services preparing the information at the end of the year for provision to the accountant. 

It must include work you do to reconcile the payroll records and prepare payment summaries for the employees.

 It must include work you do as a ‘BAS Agent’ or providing ‘BAS Services’ under the current legal obligations of the Tax Services Act 2009.

 It must include work you will do as a BAS Agent under the proposed revised law.

 2.            Is there any bookkeeping/administrative/accounting duty or role you may do for a client that the policy does not cover?

 3.           You have employees that work for you providing these services to the clients – are they covered?  How do I get them covered at what cost?

 4.           You have contractors that work for you providing these services to my clients – are they covered?  How do you get them covered at what cost?

 5.            You may work at your premises or your home or at the clients premises – are all these locations covered including any employees or contractors?

6.            How is the premium calculated i.e. on level of turnover or on what other factor?

 7.            Given your level of turnover of $_________ what is the all up all costs included total premium you will pay. (i.e. don’t exclude stamp duty or any levies etc)

 8.             At what level of turnover do I need to advise you and therefore if there is a premium adjustment what is that adjustment likely to be?

 9.            Is this policy just your policy or is it linked to others in some way?

                 (i.e. is it a grouped, pooled or master policy and what do each of those mean?  How are they different form a standalone policy issued to just you?)

 10.         Are all and every type of legal costs and any persons charges to you for helping you in defending any action, and any penalty, interest, damages claim covered by this policy and to what extent?

 11.          You could be sued for penalties and interest charged by government or for damages to a client - are all these covered in every extent?  Is there any limitation to what is covered?

 12.          Are your costs of defending an action included in the cover level or are they in addition to the level of cover?  (i.e. You have a $250k level of PI cover, does that include legal costs or are legal costs also covered by the insurance but are paid in addition to the $250k level)

For example, you may have made a mistake three years ago and had not been made aware of it until this year. The claim would be covered by this year’s policy, not the policy you had three years ago.

The key issue is“When should a potential Professional Indemnity Insurance claim be notified”? and What is a Potential claim??

We all get cranky customers and the main determining point is, can your customer’s complaint be resolved without any lasting effects on their business?

If the issue is resolved satisfactorily and there is no anticipated further action required then it is unlikely to lead to a Professional Indemnity Insurance claim and so it is time to move on. Important to bear in mind though is that if you were to get several complaints about similar issues then there may be a systemic problem that leads to the likelihood of a serious complaint being made. The general rule is that if you receive a complaint about the services you have provided and it is not resolved quickly to the satisfaction of the client who complained report the event to your Professional Indemnity insurer.

Why should you report any circumstances that may lead to a claim?

Simply because a claim is acknowledged when it is notified to you or when you consider it may lead to a possible claim down the track, this is then considered a potentially known event and should have been reported during the relevant current period of insurance.

What are the consequences of notifying a potential claims circumstance?

Virtually nil, there are no serious consequences; the bigger question is what are the consequences of NOT notifying your current provider of Professional Indemnity Insurance? The real risk is that if the likelihood of a claims circumstance was not reported, the insurer may decline the claim as it was a known circumstance at the time the policy was purchased or renewed.

The TPB are aware that approximately 70 percent of BAS agents did not have PI insurance cover when they were first registered with the Board.

“The TPB has been aware that a high percentage of BAS agents did not have PI insurance when they first became registered with the Board. By introducing PI insurance as part of our regulatory requirements, coming into effect from 1 July 2011, we are working to ensure that tax agent and BAS services are provided to the Australian public in accordance with appropriate professional standards.

This will also give better protection for consumers of these services,” Mr Boucher said.

“Setting a PI insurance requirement that is both realistic and practical for the tax practitioner profession will help to achieve these aims”.

PI insurance is not new to most tax agents. Many agents who are already members of professional associations have this type of cover as standard practice. Where an agent has PI insurance cover, theirmclients will be better protected from financial loss or damage as a result of any mistakes or negligent actions by their agent.

Under the Board’s policy not every agent will have to hold PI insurance cover themselves. For example, employees of firms will be covered under their firm’s policy. There are also a number of agents who do not run a business and they will not need to hold PII either.

In releasing its explanatory paper, Mr Boucher said the announcement of the Board’s PI insurance approach is the result of nearly 12 months of work, including careful consideration of comments received through working closely with associations, agents, the insurance industry, and from public feedback on a recent exposure draft.

In the New Year the Board will be contacting all agents, outlining their PI insurance cover obligations.

Further details of the TPB’s PI insurance approach can be found at www.tpb.gov.au

First of all there’s the good news. As a small business you stand to receive a higher quality level of bookkeeping as a result of the new regulations. The new regulations are part of a move by the government to prevent sub-par Business Activity Statement advice from being dispensed. The new regulations dictate that tax agents and BAS agents must register with the new Tax Practitioners Board, which will replace the six individual state boards. Membership fees will now apply to all those who register.

Additionally, tax agents will now require tertiary qualifications, a diploma, admission to legal practice or work experience including eight years of full-time work within the industry during the previous decade.

BAS agents will require an accounting qualification, such as a certificate, and work experience within the previous two years.

Now the bad news. Because bookkeepers will now require this standard level of qualification, the cost of bookkeeping services is expected to rise across the board. Many unqualified bookkeepers will drop out of the market and others will have to re-train. It is thought that this will inevitably force prices up marginally.
There are concerns that the higher bookkeeping costs may encourage small business owners to do their bookkeeping themselves, however this is usually a mistake.

By engaging a professional, businesses are guaranteed higher quality service and so stand to gain money in the long term. This is particularly true when you consider that done the right way, engaging a bookkeeper need not be particularly expensive. The average hourly rate for bookkeepers is $44.79 according to ServiceSeeking.com.au, with the lowest quoted prices just $20 per hour.

Ultimately, most industry professionals believe that the new regulations are for the best and will result in a more streamlined industry that will provide businesses with more peace of mind when they look to engage a bookkeeper.