Accountants who are opening a new practice may not be sure about what type of CPA professional liability insurance they should arrange. One strategy is to contact a trusted professional in another firm who is doing similar work. Another effective strategy is to contact an insurance professional with experience in errors and omissions (E&O) coverage. This provider can apply his or her experience to determine a suitable coverage placement, and to provide recommendations for a protection program.
Mature Practices Use Claims Analysis
Although using industry data is a good starting point for determining the proper CPA professional liability insurance, accountants with mature practices can use claims analysis to fine tune their policy. Claims analysis involves analyzing the claims brought to bear during the practice. These claims reflect a real-world cross section of liability for that accountant in his or her particular practice. It will differ from the industry average due to the following factors:
- Temperament of clients
- Nature of the CPA work
- Culture of the locale (regional nature of litigious situations)
Claims analysis is performed on claims regardless of outcome. The idea is to identify the types of suits that have been filed, as well as their likelihood of an unfavorable judgment. In this way, a CPA can determine his or her level of risk with associated dollar values. In addition, accountants can use claims analysis to work with their insurance provider, and adjust their CPA professional liability insurance if necessary.