In today’s rapidly evolving risk management landscape, accounting firms face increasing exposure to cyber threats and third-party claims. From cyberattacks to client data breaches, the potential for loss is growing, making robust insurance coverage essential. Understanding the difference between first-party and third-party insurance policies can help accounting professionals maximize recovery in the event of a claim. First-party policies protect the insured’s own losses, such as those resulting from cyberattacks, while third-party policies cover liabilities arising from claims made against the insured by other parties.
For accounting firms and professionals seeking to mitigate risk and ensure recovery, here are three vital steps to take.
1. Prepare for Cyberattacks
The rise in cyberattacks targeting businesses—including ransomware, data breaches, and email hacking—makes it crucial for accounting firms to be prepared. These attacks can lead to significant losses, such as client data theft, wire transfer fraud, and extortion. With the added threat of AI-powered cybercrime, firms must adopt a proactive approach.
Cyber insurance is a critical safeguard against these risks. To streamline recovery after an attack, it’s beneficial to have your preferred cyber forensics vendor preapproved in your policy. This ensures there is no delay or dispute with your insurer over which firm should investigate the attack or the costs involved. Furthermore, many cyber insurance policies cover public relations and crisis management expenses, which can be invaluable in controlling the fallout from a breach.
While a cyber insurance policy may be the first line of defense, other types of coverage, such as crime, property, commercial general liability, and professional liability policies, may also apply in the event of a cyber-related loss. When filing a claim, it’s crucial to report it across all potential policies for maximum protection.
2. Understand Reporting Obligations
Cyberattacks often trigger third-party claims, such as lawsuits from clients or regulatory actions alleging a failure to protect sensitive information. These claims can take many forms, including demand letters, subpoenas, or requests to toll statutes of limitation. Insureds need to be aware of the many types of claims that may arise from a cyber incident and promptly notify all relevant insurers.
Failing to report claims on time or not involving the appropriate insurers could jeopardize coverage. A best practice for accounting firms is to maintain clear documentation of all incidents and corresponding notices to insurers, ensuring compliance with reporting obligations.
3. Tailor Coverage and Build a Strong Defense
Accounting firms should customize their third-party liability coverage to address their unique risks. Many professional liability policies cover claims of wrongful acts related to the firm’s professional services. Given that CPAs often provide a wide range of services, it’s essential to ensure the policy accurately reflects all areas of expertise.
Additionally, securing preapproval from your insurer for defense counsel and agreed-upon rates can smooth the claims process. Firms should also stay vigilant against attempts by insurers to impose unexpected rate caps or litigation management guidelines, which may not be part of the original policy.
Stay Ahead of Risks in a Changing Landscape
Cyber threats and liability risks are growing concerns for accounting firms in today’s digital age. By proactively managing insurance coverage, reporting claims promptly, and tailoring policies to fit their services, firms can better protect themselves against unexpected losses. With the right preparation, accounting professionals can mitigate the impact of cyberattacks and third-party claims and safeguard their business for the future.
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