Underwriters commonly look at the services an accounting or tax firm sells, its revenue and payroll, its claim history, how well it protects client data and money, and the limits and retroactive date (the earliest work the policy covers) you ask for. A new owner can influence most of these without cutting the coverage that matters. This guide explains each driver and what you can do about it. It gives no price figures, because premiums vary too much by carrier, state and firm for a public number to help you.
The short answer
- The biggest levers are accurate descriptions of what the firm does, a clean and documented claim history, written data security controls and sound money handling.
- Professional liability is the policy most tied to services and revenue. Adding prior acts coverage (cover for work done before the policy started) or a longer look-back widens what the carrier is taking on.
- Workers' compensation for an office firm is priced on class, payroll and any experience modification (mod), a multiplier that compares your past claims with what is expected for your class. A low injury rate in the industry does not set your premium.
- Be careful about cutting the retroactive date, cyber coverage or, if the firm moves client money, client property crime coverage to save premium. Those policies answer the firm's real losses.
- Quotes vary by carrier and underwriting. A quote is not coverage until a carrier binds it.
What do underwriters weigh for an accounting or tax firm?
The table lists the main drivers, why each matters for this kind of practice and what a new owner can influence. It lists what underwriters may ask about. It does not predict a number.
| Driver | Why it matters | What you can do |
|---|---|---|
| Service mix | Attest work (audits and reviews, where a certified public accountant (CPA) issues an opinion or a limited assurance report), investment advice and payroll or bookkeeping that touches client money carry different risks than return preparation alone | Describe every service accurately and tell the broker before you add a new line |
| Revenue and client volume | More fees and more returns mean more work that could be questioned, and an underwriter may ask how much of it lands before April 15 and October 15 | Give figures that match your financial statements and explain growth and seasonality |
| Claim and circumstance history | Past claims, open matters and notices of circumstances signal what could come next | Close old files where you can and bring a clear loss run narrative |
| Limits, deductible, retroactive date | A longer look-back and a higher limit mean the carrier takes on more exposure | Choose each on purpose and compare options side by side |
| Data security controls | The firm holds sensitive taxpayer data for every client | Document the security plan, authentication, encryption and backups |
| Money handling | Staff with access to client funds or payment instructions raise crime exposure | Segregate duties (the person who asks for a payment is not the person who approves it) and require call-back checks for changed instructions |
| Payroll, class and mod | Workers' compensation follows the class, the payroll in it and any mod. The workers' comp guide covers the mechanics | Report payroll accurately and review the class and mod for errors |
| Seasonal staffing | Temporary preparers and overtime affect payroll audits and employment claims | Classify workers correctly and track hours |
| Where the firm and its clients are | State rules, class codes and registration regimes differ, so a multi-state client base changes what applies | List the states you prepare returns for and tell the broker before you add a new one |
| Who prepares and reviews returns | An underwriter may ask about credentials, review steps and supervision of seasonal preparers | Write down who signs, who reviews and how seasonal staff are supervised |
| Property and size | Office contents and computers are modest, but business income depends on tax season | Insure the real contents and build the income worksheet around peak months |
| Contract and lender terms | A lease may require additional insured status and a waiver of subrogation, and an engagement contract may require a stated professional liability limit | Read them before you ask for quotes |
How do the services you sell move the price?
The federal industry codes separate offices of CPAs, tax preparation services, payroll services and other accounting services such as bookkeeping. A firm can straddle several, and the mix is what an underwriter reads. According to the International Risk Management Institute (IRMI), accountants' professional liability policies handle higher risk work such as investment advice and Securities and Exchange Commission related engagements by endorsement, so a practice that adds an advisory line should expect a separate conversation about it.
A payroll or bookkeeping line that holds client funds changes the crime picture too, because the firm is now responsible for money that is not its own. The Internal Revenue Service (IRS) also expects a tax preparation firm that handles taxpayer data to follow the federal security rules for it, so the same service mix feeds the cyber discussion. The practical step is simple: list every service, say how it is billed and whether client funds are involved, and review it with the broker before the application goes out. A description that does not match what the firm actually does can cause problems when a claim arrives.
For how professional liability pricing varies in general, see the professional liability insurance cost guide.
Which controls can I put in place before renewal?
Controls help because they give an underwriter something to read besides a promise. Evidence a new owner can start assembling now:
- A written information security plan. The Federal Trade Commission (FTC) Safeguards Rule lists tax preparation firms as covered and calls for a qualified individual, a written risk assessment, safeguards such as access controls and encryption, testing, staff training, oversight of service providers, an incident response plan and an annual written report. The IRS says multi-factor authentication (MFA) applies regardless of firm size.
- Backups kept off the network. The IRS security guide tells preparers to keep backups on a source not connected full time to the network.
- Weekly checks of filing identifiers. The IRS recommends reviewing the firm's Electronic Filing Identification Number (EFIN) and Preparer Tax Identification Number (PTIN) activity weekly, to spot misuse.
- Engagement letters and a deadline calendar. Written scope and tracked due dates support a professional liability submission.
- Segregation of duties and call-back checks. The person who requests a payment is not the person who approves it, and changed bank details are confirmed by phone.
Carriers are not obliged to give a credit for any item, and each underwriter treats controls differently. Read how cyber controls can lower premium and what underwriters want from new owners.
How is workers' comp priced for an office-based firm?
Workers' compensation is priced from the class rate for your state, your payroll in that class and any experience mod, not from the national injury rate. Low industry hazard is context, not a promise of a low premium. The class code is the one the insurer assigns, and a small firm may have no mod. Accurate payroll and the right class are the levers. Rates, class codes and mod rules differ by state, and some states route coverage through a state fund. The workers' comp, payroll and class codes guide for accounting and tax firms covers class codes, audits and seasonal staff, and the workers' comp insurance cost guide gives the general picture.
How can two similar firms get different quotes?
A hypothetical example. Two firms each have about $1,000,000 in fees and eight employees. Firm A gives each preparer a separate tax software login, runs a deadline calendar and has a second person review returns before filing. It also has a written security plan, offline backups, signed engagement letters, a call-back rule for payment changes and a clean loss run. Firm B has preparers sharing one login, tracks due dates in personal calendars and has one open notice of circumstances from a prior-year return.
An underwriter has more questions to ask Firm B, may require more information or add conditions, and is more likely to see risk where Firm A shows evidence. What each carrier does with that is up to the carrier. No prices are shown, because none are being predicted. A new owner can change the controls and documentation, and those are the same things a careful underwriter reads.
How should I budget insurance in my acquisition model?
Ask the seller for the last three years of declarations pages and premium invoices, not only the current bill. Check whether the premium history reflects a solo-owner program that will change under you. At the first renewal, plan for the possibility of a step change as limits, the retroactive date and cyber coverage get sized for you. Run the model on the seller's actual premium history plus a sensitivity case, not a guess. Treat the lender's insurance requirements as a cost to confirm before you size debt service, and replace the estimate with a real figure once a carrier quotes it. Investors and a lender may want to see that the premium, the deductible and the filing-season cash swing all fit the plan.
What should I not cut to save premium?
Before you trim anything, protect these three:
- Retroactive date and prior acts. Dropping continuity can save premium on paper while leaving the seller's earlier work uncovered. See coverage gaps for accounting and tax firms.
- Cyber and social engineering coverage. They answer the loss a filing-season incident can cause.
- Client property crime if the firm moves client money.
A higher deductible can reduce premium, but only if the firm could pay it from cash, and cash may be tightest before spring revenue arrives. If you have a lender, check its insurance terms first. Savings that come from removing duplicate coverage or fixing errors are different from savings that come from lowering protection. Read how to reduce insurance costs after buying a business and the core coverage guide for accounting and tax firms.
If you send a broker last year's declarations pages and a one-page list of your services, they can tell you which of these levers apply to you. Any terms depend on carrier underwriting, and a quote is not coverage until a carrier binds it.
Keep reading
- Just Bought an Accounting and Tax Firm? What Insurance Do You Need?
- Workers' Comp, Payroll and Class Codes for an Accounting and Tax Firm
- How to Reduce Insurance Costs After You Buy a Business
- Cyber Controls That Can Lower Your Cyber Insurance Premium
- What Underwriters Want to See From a New Business Owner
- All guides for new business owners
Frequently asked questions
How much does insurance cost for a small accounting practice?
There is no honest single number. The price moves with your services, revenue, claim history, state and limits, so any figure from another firm can mislead you. To get quotes you can compare, bring the same documents to every broker: the fee and payroll figures, a list of services, loss runs, the written security plan and the lease. A quote is not coverage until a carrier binds it.
Will a written security plan lower my cyber premium?
It can help an underwriter feel more confident, but no carrier is obliged to give a credit and treatment varies. The plan also matters apart from premium, because the FTC Safeguards Rule expects covered tax preparation firms to maintain one.
Does adding bookkeeping or payroll change my insurance?
Usually yes. Those services can put the firm in charge of client money and can change the professional liability and crime picture. Tell the broker before you add the line, so coverage and description match.
Is workers' comp cheap for an accounting firm because injuries are rare?
It is often a modest line for office work, but the industry injury rate does not set your premium. Premium depends on class, payroll, state and any mod, so your own payroll accuracy and class assignment matter more than the national average.
Should I raise my deductible to save money?
Only if the firm could pay it comfortably, including in the weeks before spring revenue arrives. A higher deductible can lower premium, but it is a trade, not a free saving.
References
- IRMI: Accountants Professional Liability Insurance
- FTC: Safeguards Rule, what your business needs to know
- IRS Publication 4557: Safeguarding Taxpayer Data
- IRS Publication 5708: Creating a Written Information Security Plan for Your Tax and Accounting Practice
- NCCI: ABCs of Experience Rating
Just bought a business? Get your insurance reviewed.
Send Morrow the declarations pages, loss runs and key contracts you inherited. Morrow can review them against the business you bought, flag gaps and request quotes where it makes sense. Any new terms depend on carrier underwriting.
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This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.