Limits of indemnity: what accountancy firms need to know

Selecting the right limit of indemnity is a fundamental part of effective risk management for any professional firm. Despite its importance, it is rarely a simple decision. There is no precise formula. Instead, the appropriate limit is shaped by the nature of a firm’s clients, the services it provides, and the potential scale of loss arising from those activities.

There is no one-size-fits-all approach 

Benchmarking against firms of a similar size or within the same sector can provide a useful reference point, but it should never be relied upon in isolation. Client profiles differ, business models vary, and risk exposures can diverge significantly even among firms operating in the same market. Crucially, the greatest exposure does not always come from the largest client. Smaller clients operating in higher-risk environments, or those requiring complex or specialist advice, can present a disproportionately high loss potential.

Insuring for the worst case scenario 

Where possible, firms should aim to insure to a level that reflects their worst credible loss. In practice, premium considerations and market capacity can make this challenging. When full coverage is not achievable, the focus should be on securing a level of cover that is reasonable, defensible and aligned with the firm’s risk profile and financial tolerance. The key is ensuring that the chosen limit can be justified in the context of the work undertaken and the exposures that genuinely exist.

Using contractual terms to manage liability 

Contractual liability caps can be an effective way of aligning potential exposure with available insurance, but they must be applied carefully. 

• Liability caps must comply with the Unfair Contract Terms Act (UCTA). 
• Certain services, such as audit work, only allow for limitations of liability where statutory conditions are met. 

When used appropriately and lawfully, contractual caps can play a meaningful role in reducing risk and supporting a firm’s overall insurance strategy.

Why now is the right time to review your limits 

If limits of indemnity have not been reviewed recently, the current economic environment makes reassessment particularly important. Several factors have contributed to increasing claim severity across the market. 

Rising inflation 

Inflation has a direct impact on claim values. Replacement costs, business interruption losses and compensatory damages have all increased. 

Increasing legal costs 

Solicitors’ fees continue to rise, driving up the cost of defending claims and increasing overall settlement values. 

Use of robotics and AI 

Increased use of robotics and AI gives rise to a greater risk of a systemic failure. Accountants haven’t typically been prone to systemic issues in the way that say IFA’s have. This should be factored in when considering exposure, including aggregation and limits of liability. 

Evolving work profiles 

Changes in client mix, new service lines or higher-value instructions can materially alter a firm’s exposure. 

Regular reviews help ensure cover remains aligned with real-world risk and reduce the danger of underinsurance.

Complex and high-volume work combined with the widening skills gaps now seen across the industry is a recurring driver of professional negligence allegations. Rapid change, substantial workloads and evolving technologies and tools increasingly risk eroding the margins of error available to accountants, especially where they are asked to move quickly or operate beyond traditional advisory boundaries. 

This article explores what claims teams and insurers are increasingly seeing in practice, highlighting key risks emerging across the profession. It also considers the practical steps firms can take to mitigate exposure, helping ensure that the opportunities presented by change in 2026 do not translate into avoidable professional indemnity claims.
 

Key Takeaways for Accountancy Firms

To make informed decisions on limits of indemnity, firms should: 

• Understand the specific risks presented by their clients and the services they provide 
• Aim for cover that reflects the worst credible loss where viable 
• Use contractual liability caps carefully and within the law 
• Review indemnity limits regularly, particularly during periods of economic change 

A considered, proactive approach strengthens organisational resilience and helps maintain confidence among clients and stakeholders alike.