Insurers are raising the fees they charge accounting firms because of heightened concern over recent balance-sheet scandals and some insurers are getting out of the professional liability business altogether.
Premiums and deductibles for accounting firms have doubled in some cases, while writing policies for other professions has also become a pricey option, observers said.
“With the explosion in litigation and the willingness to seek others to blame, it's a much more unattractive area for insurers,” said Nicholas Smith, the chief agent in Canada for insurance giant Lloyd's of London.
Insurance premiums have increased across the board, with high-profile accounting scandals at Enron Corp. and others helping to fuel a climate of uncertainty.
“There is a general distrust of corporate governance,” said Pauline Guise of Montreal-based insurer B.F. Lorenzetti & Associates Inc. “Underwriters have to be made comfortable and at the moment they're not. So there are many corridors for concern.”
Indeed, some accounting firms face a shrinking pool of insurance providers, shorter contracts and less coverage for more money.
Higher deductibles are also raising insurance costs, observers said.
“The two most significant costs we are going to face in the new era are technology and risk-management costs,” said Keith Vance, chief operating officer at BDO Dunwoody in Toronto.
Michel Yip, managing director at The Encon Group, Canada's largest professional liability firm, said some insurers are avoiding the biggest accounting firms because they handle high-profile public companies, which are perceived to be high risk.
“We don't want to pick up that liability,” he said of the Ottawa-based firm. “That is part of the reason why we deal with the smaller guys.”
Mr. Yip said reinsurers have taken a big liability hit.
“They're the ones taking the brunt of Enron and other public accounting fiascos,” he said.
In this environment, insurance companies are trying to assess accurately the risks of covering accounting firms, Ms. Guise said.
Higher insurance premiums are among the host of new regulatory costs that accounting firms have absorbed, pushing up audit fees they charge companies.
Mr. Vance at BDO Dunwoody said accounting firms must continue to increase the quality of their risk management, although a tough insurance market isn't likely to turn around soon.
“It's going to be a much harder market than in the 1980s and it will last longer,” Mr. Vance said.
To deal with the prospect of limited insurance in the past, some of the largest accounting firms have created captive insurers to make sure they're covered.
“I don't think the [biggest companies] will not have insurance available to them,” said Michael Thompson, general counsel for Ernst & Young in Toronto.
