My industry is getting hurt pretty badly," laments Louis Barbich, managing partner of Barbich Longcrier & Co., a $1-million accounting firm in Bakersfield, Calif. Barbich, a tall, gaunt man of 42, stands before his office window. Outside, through the shimmering 105-degree heat, a vast oil refinery looms in the distance. Although the popular image of Bakersfield is that of an oil and agricultural center, the city is in fact home to a variety of industries, and about 50 accounting firms. The California Society of Certified Public Accountants (CSCPA), of which Barbich is president, is the largest accountants' association in the country. "There's a lot of real estate activity in California, as well as, shall we say, 'financial innovation," smiles Barbich. "That's probably why there's such a high concentration of CPAs."
The profession's insurance problems stem from an increase in the number of lawsuits against accounting firms. Typically, a lawsuit arises when an audited company experiences serious financial problems after the accounting firm has given it a clean bill of health. Premiums for accounting firms nationwide are expected to at least double, maybe triple, and many may be forced to "go bare."
Barbich Longcrier, however, was able to hold its premium increase for 1986 to 140%. That's because the firm consolidates its insurance buying through the CSCPA. Buying insurance through an association is a common practice among firms that provide professional services, and is gaining favor with other types of businesses as well. In buying insurance for its 24,500 members, the CSCPA relies on one broker to negotiate with its carrier, Imperial Casualty & Indemnity Co., based in Omaha.
The CSCPA's insurance committee, through its broker, hammers out with Imperial the terms of all members' policies (such as the average premium cost per CPA partner). Each firm has an individual policy, but -- by bargaining in a group -- everyone has more leverage. "I'm convinced we wouldn't be able to find liability coverage if we tried to buy it on our own," says Barbich. "Many insurance carriers are simply moving out of the CPA market. We pay only about $150 per partner in annual association dues, and we get a terrific service in return." He notes that several accounting firms in the San Francisco Bay area, which are not participating in the insurance program, had their liability insurance abruptly canceled this year.
Barbich says his firm has a good record, and its premium costs had remained steady for five years before exploding in 1985. "We've never had a lawsuit filed against us, knock on wood, and we're being extra careful that it never happens," he says.
Geoffrey King, Barbich Longcrier's partner in charge of quality control, says he now insists that the other partners perform more in-house inspection of one another's work. But, as King points out, even thorough peer reviews can't guarantee that an accounting firm will get the coverage it needs. "Your firm's individual record doesn't matter if you're in the wrong industry."