Accounting professionals live in a world of taxes, figures and business analysis, often helping clients limit exposure to adverse financial events. Still, some industry experts suggest many accounting firms do not practice what they preach. Like the proverbial shoemaker who works hard to make shoes for his customers while his own children go barefoot, an accountant could be uninsured or underinsured and vulnerable to unnecessary risk.
The National Association of Insurance Commissioners recommends periodic review of risk exposure, usually once a year and/or at times of significant change.
A rule of thumb when purchasing policies or assessing needs:
- Shop around - Examine rates from several companies. Compare plans with the same coverage.
- Protect yourself - Stop. Call. Confirm. Then use the National Association of Insurance Commissioners Consumer Information Source (https://eapps.naic.org/cis/) to compare your insurance company's consumer complaint ratio to that of others in the industry.
- Review annually - Each year check your policies to make sure they continue to meet your changing needs.
First Steps for Risk Management Planning
Before a company opens its doors to the public, protections to safeguard the owner's assets should be in place. An insurance broker experienced in commercial lines can help the owner design a portfolio of insurance policies suited to his or her unique business plan. Some key policies are listed below.
- A Business Owner's Policy or BOP is a cost efficient commercial property and liability package crafted for small and medium sized practices as a foundation for a risk management toolkit. A BOP does not include automobile insurance, workers compensation, professional liability insurance or health and disability insurance. Typically a BOP includes:
Property insurance for business-owned buildings, equipment and contents;
Liability protection for harm caused to others, such as "slip and fall" claims;
Business interruption insurance for loss of income resulting from a fire or other catastrophe that disrupts the operation of the business;
Optional property selections for loss of valuable papers and records, increased limits, equipment breakdown and computer property.
Home-based accounting practices can insure business contents for just a few hundred dollars annually. Some insurers will allow a business endorsement on a homeowner's policy. These endorsements do not include the more comprehensive coverage included in a BOP.
- Professional Liability guards the business against legal liability resulting from errors or omissions, unfortunately a common happening in services that include tax preparation. Premiums are based on account size and age of the business. National accounting organizations frequently offer member group plans that may be more cost effective than private insurance products.
- Workers Compensation insurance provides wage replacement and medical benefits to employees injured in the course of employment. In turn, employees relinquish their right to sue his or her employer for the tort of negligence. Each state sets its benefits and laws.
In general, it includes legal protection for the owner; income, medical and rehabilitation benefits for the employee; and payment to surviving family members in the event of a fatal on-the-job accident. Rates are based on risk level, which is low in the accounting industry.
- Commercial Automobile insurance provides the owner and employees protection for business-use vehicles. Keeping a business in motion requires complete coverage including personal injury and uninsured motorist benefits, as well as comprehensive and collision protection.
What Else To Consider
The above list identifies basic policies all small accounting practices should include in their risk management toolkit. Industry pundits suggest other products such as key person coverage to protect the revenue stream due to loss of central employees – typically owners.
Disability coverage – often overlooked – can be critical. It is more likely that persons aged 30-65 will become disabled rather than die.
Buy/Sell policies, Employment Practices Liability insurance and Umbrella coverage are all unique protections that should be considered among the owner(s), their attorney and an insurance professional. From another perspective, providing health and life insurance benefits to employees creates incentive to attract and keep good staff.
Keep in mind that ACA legislation will require employers with 50 full-time equivalent employees or more to offer health insurance to full-time workers – or pay a penalty – starting in 2015-2016. On the upside, accounting practices with fewer than 25 full-time workers may be eligible for various incentives.
According to the Insurance Information Institute, some owners can choose products other than traditional insurance, such as self-insurance – a method of managing risk by setting aside a pool of money for use should unexpected losses occur. Even so, any option an accounting professional selects requires careful consideration and expert advice from a legal and insurance perspective.