The ICAEW 2.5x gross fee income formula

Category: Professional indemnity · Reviewed by the Apex broking team · Last reviewed 2026-08-22 · ~4 min read

What this entry covers

This entry deals with the arithmetic of the minimum limit of indemnity and the related excess and run-off mechanics. The wider question of what ICAEW’s bye-law requires of members in practice, and how the regime fits together, is covered separately in ICAEW bye-law 61 and the Professional Indemnity Insurance Regulations. The figures below are those in the Professional Indemnity Insurance Regulations effective 1 September 2024, stated as at August 2026. They are minimums set by the regulator; they are not a recommendation about how much cover a particular firm should buy.

The formula

For a firm whose gross fee income is below £800,000, the minimum limit of indemnity in each policy year, for any single claim and in the aggregate, must be equal to two and a half times its gross fee income, with a minimum of £250,000. The calculation therefore has two steps: multiply gross fee income by 2.5, then apply the £250,000 floor if the product is lower. For a firm whose gross fee income is £800,000 or more, the minimum limit in each policy year must be at least £2 million for any single claim and in the aggregate.

How the three numbers relate

The structure is easier to hold in mind once you see that the numbers are not arbitrary. The floor bites at the bottom: because £250,000 divided by 2.5 is £100,000, the multiple only produces a figure above the floor once gross fee income exceeds £100,000. Below that level the answer is £250,000 regardless of income. The cut-off bites at the top: because 2.5 × £800,000 is exactly £2,000,000, the formula and the fixed £2 million minimum give the same answer at £800,000, and the schedule is continuous rather than stepped. In between, the requirement rises smoothly with fee income.

Worked as ratios: a firm whose gross fee income doubles from one year to the next, while remaining inside the band, sees its required minimum limit double too, unless the floor still applies. A firm sitting just under the cut-off gains nothing by staying there, because the requirement at £800,000 is the same under either rule.

Single claim and aggregate

The requirement is expressed as applying both to any single claim and in the aggregate. The regulations permit a firm to satisfy it either with an annual aggregate limit or on an each and every claim basis. The distinction matters commercially: an aggregate limit is a single pot for the policy year and can be eroded by defence costs and by earlier claims, whereas an each and every claim limit reinstates for each claim. See aggregate limit and aggregation of claims, which decides how many claims you actually have.

The excess cap

The regulations also cap the excess a firm may carry: the maximum aggregate excess must not exceed the higher of £3,000 or 3% of the firm’s gross fee income. Read the two together and the effect is that firms with gross fee income up to £100,000 are held to the £3,000 cap, because 3% of £100,000 is £3,000, while above that level the percentage governs. This is a regulatory ceiling on self-insured retention, not a recommendation — see professional indemnity deductible.

What counts as gross fee income

Gross fee income for these purposes means all income in respect of work carried on by a firm engaged in public practice, including income from personal appointments, commissions received from third parties and work subcontracted out. It excludes VAT and the recovery of disbursements and expenses that do not form part of the chargeable fee. Getting this figure right matters twice over: it sets the limit the firm must buy and it sets the maximum excess. Firms that calculate it on net fees, or that omit commission income, can find themselves below the required minimum without realising.

Run-off and the large-firm exemption

On cessation of public practice, the members in practice at the date of cessation must ensure cover meeting the requirements of the regulations is in place for at least two years, and must take all reasonable steps to ensure cover remains in place for a further four years. The minimum limit during run-off follows the same rules. Separately, a firm with annual gross fee income above £50 million is not required to put a qualifying insurance policy in place, but must have appropriate arrangements to ensure it can meet claims arising from being in public practice. Run-off pricing and planning are dealt with in PI run-off cover costs.

The minimum is not the answer

The formula produces a regulatory floor tied to fee income, and fee income is a poor proxy for exposure. A small practice advising on a large transaction, holding a single high-value audit, or handling client money can face a claim many multiples of 2.5 times its annual fees. The sensible test is the size of the largest realistic claim arising from the firm’s current work, not the size of the firm. Note also that defence costs are commonly within the limit rather than in addition to it, so the effective indemnity available is lower than the headline figure.

Frequently asked questions

How is the ICAEW minimum limit calculated?

For firms with gross fee income below £800,000, it is two and a half times gross fee income, subject to a minimum of £250,000. For firms with gross fee income of £800,000 or more, it is at least £2 million. Both apply for any one claim and in the aggregate.

Why is the cut-off at £800,000?

Because 2.5 times £800,000 is exactly £2,000,000. At that point the multiple and the fixed £2 million minimum give the same answer, so the requirement is continuous rather than stepped.

How much excess can an ICAEW firm carry?

The maximum aggregate excess must not exceed the higher of £3,000 or 3% of the firm’s gross fee income. In practice that means the £3,000 figure governs firms with gross fee income up to £100,000.

How long must run-off cover be maintained?

Members in practice at the date of cessation must ensure compliant cover is in place for at least two years, and must take all reasonable steps to keep it in place for a further four years.

Related entries

• ICAEW bye-law 61 and the PII Regulations
• ICAEW PII aggregation for audit firms
• Do I need PI insurance as an accountant?
• Aggregate limit explained
• PI deductible explained
• PI run-off cover costs

This entry is part of the Apex Insurance Wiki. Position stated as at August 2026. Last reviewed 2026-08-22. Next review: 2027-02-22. It is general insurance information, not legal advice, and not regulated advice on a specific policy.

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy.