CPA Insurance Cost: Average Rates & What Drives Them

A CPA firm sells judgment, and its biggest insurance risk is a claim that the judgment was wrong. A missed filing deadline, an error on a return, a bad estimate that leads to a penalty or a dispute over an audit can all lead a client to sue, even when the firm believes it did nothing wrong. Professional liability, often called errors and omissions or E&O, pays for defense and settlements in those cases, and it is usually the central policy for accountants.

Because the physical risk is low, the rest of an accounting firm's insurance is relatively cheap. Clients do not slip on a factory floor, and the property is mostly computers and files. Cyber exposure is the more serious companion risk, since firms hold tax IDs, bank details and payroll records.

MoneyGeek models premiums for a small accounting practice with one to four employees, using standard limits. These are estimates, not quotes.

Cyber is the largest line in that model, which says something about how insurers see an accounting firm's data. Professional liability follows. Workers' compensation is small because office work carries little injury risk, and Insureon reports a monthly average of $34/mo for its finance and accounting customers, a figure in the same low range.

ERGO NEXT publishes average premiums by profession from its own customers. For accountants, the values come from real small firms.

These averages are lower than the modeled ones for professional liability, and general liability here is higher than E&O. That is a reminder that a small or solo accountant, who may work from home with a handful of clients, is rated differently from the standard profile MoneyGeek uses.

The two sources differ for reasons of method. ERGO NEXT reports what its customers paid, $40/mo for accountants. MoneyGeek models a firm with a given revenue, headcount and limit, and puts it at $70/mo. A firm that does only bookkeeping and individual tax returns can reasonably price below a firm that handles audits, trusts or business clients with outside investors. Services matter more than the label CPA does.

• Type of work. Tax preparation, audits, reviews, advisory and bookkeeping carry different claim histories, and audit work generally draws more attention.
• Revenue and clients. Larger practices and clients with complex returns increase exposure.
• Limits and deductible. Higher limits cost more, and a bigger deductible lowers the premium.
• Claims history and complaints. Past claims or state board complaints can raise pricing.
• Engagement letters. Firms that use clear written scopes of work are often viewed more favorably.
• Cyber and controls. Insurers may ask about multi factor authentication, backups and how you protect client data.

Most E&O policies are written on a claims made basis, meaning the policy has to be in force when the claim is filed. If you retire, sell the practice or switch carriers, ask about extended reporting coverage so work from earlier years stays covered. Check whether the policy covers regulatory proceedings, such as an IRS inquiry about preparer penalties, since some policies limit that. Check whether cyber coverage is bundled or sold separately, and whether it includes help after a breach. A licensed insurance agent or broker can match the policy to your services and any state board rules.

General liability covers a client who is hurt at your office, and ERGO NEXT customers report about $45/mo for it. Commercial property covers computers and furniture, at about $35/mo for ERGO NEXT customers. A business owner's policy can bundle the two for small offices. Cyber is a separate policy and worth discussing in detail. Fidelity or crime coverage is another line some firms consider if employees handle client funds.