Experts: Criteria When Purchasing A/E Insurance
Introduction
Saying the last four years has created change and challenges for the design and construction industry would be an understatement - reduced revenues, staff reductions driven by fewer project opportunities resulted in smaller firms including the creation of the mega companies through acquisitions. Based on SmartRisk Surveys, 75% of firms stated the economic climate has had a negative impact resulting in fewer firms in the industry today. However, at the same time, insurance carriers for this specialized segment has more than doubled to 50 - 60 providers, all competing for market share and a piece of a smaller premium pie.
The increase number of carriers has advantages for A/E firms with more options and a enormous amount of insurance capacity (available insurance). However, there are numerous disadvantages making selecting a carrier more difficult with wide variations of experience, ability, coverage features and services complicated by low-cost providers looking very attractive for cash strapped A/E firms in this challenging economic climate.
A/E Insurance Experts
A/E firms are advised not to be short-sighted focusing primarily on cost when making this important business decision. To help sort through the important aspects when making this critical decision, leading insurance agents specializing in the A/E market segment in different regions of the U.S. were asked to provide their thoughts and guidance when selecting an insurance provider.
Jeff Cavignac, CPCU, RPLU, ARM, President, Cavignac & Associates, San Diego, California http://www.cavignac.com states, “ Competition for architects and engineers Professional Liability is as intense as it ever has been. Seven to eight years ago, there were at most 10 companies competing for this business; today there are over 50. In order for an insurance company to develop an ongoing presence in this business, they need to establish market share.” Jeff adds, “There are only four ways for a carrier to do that; ”
- Provide broader coverage
- Provide superior claims handling
- Provide exceptional risk control
- Provide a lower price
Cavignac states, “If carriers can’t compete on items 1,2 or 3…that only leaves price. This is exactly what some of the new players are doing. They are pricing their coverage 20-25% below the experienced underwriters. Unfortunately they are not underwriting 20-25% better. It is only a matter of time before the losses catch up with the premiums.”
Consistence with Jeff’s statement, based on industry surveys approximately 20% of all A/E firms will have claims which start developing four to five years after policies are in place. The average cost of closed claims is in the range of $200,000 - $250,000. It is forecasted that when claims start rolling in, there will be a consolidation in the A/E insurance segment with carriers exiting the market or their books of business will be purchased by other carriers.
Keith Fitschen, Vice President - A&E Professional Division, Marquis Agency, Woodbridge, N.J., http://www.marquisagency.com states, “Operating in the current economic climate, which has been upon the A/E and Construction Industry for the past 4-5 years has caused consumer decision making to change dramatically, with the acquisition of Professional Liability Insurance (PLI) at the forefront. Price has and ALWAYS will be a factor for A/E clients. However there are many components firms should consider when making this important business decision including...."
Policy Form:
- Is the policy form a “true” A/E form or a Miscellaneous Form being sold as such?
- How broad is the Insuring Agreement?
- How broad is the Definition of Professional Services?
- Does the policy offer “true” Worldwide Coverage?
Claims Handling:
- How many years experience does the average claim analyst have in handing A/E claims?
- Are the claim analysts licensed attorneys?
- Does the policy form offer free Loss Prevention or Pre-Claim Assistance? If so, is it handled in-house or by a T.P.A.?
- Who are the A/E defense law firms/attorneys, which the carrier regularly utilizes? Do they have a “Panel List” for review?
- How aggressive is the carrier is mitigating and defending claims – do they take a more conservative approach or are they pro-active?
Risk Management:
- Cost-sharing for risk management efforts?
- Webinars for C/E and/or Premium Credits?
- Contract Review services?
- Risk Management Website, with resources for its’ insureds?
- Publish Newsletters, Articles, and Whitepapers on trending topics that effect A/E’s?
- Support A/E Industry Associations for its’ insureds?
Jeff Cavignac adds, “ In addition, most new carriers don’t have the premium volume to justify in house, experienced, specialized claims adjusters. As such they have to sub out their claims to Third Party Administrators (TPA’s). While some TPA’s are qualified, many are NOT experienced with the design profession. Similarly new companies generally speaking have not had the time to develop risk management programs or are not inclined to; this is a reflection of the fact that Risk Management takes a substantial commitment of time and money.”
Keith Fitschen states, “A carriers capacity, underwriting experience and appetite are very important - identify the available limits the carrier is able to offer on a Practice Limit Basis and what are the limits on a Project/Client Excess Basis. Also; does the carrier offer limits on an Excess Basis? Consider the number of years an underwriter has in rating A/E risks and do they have the authority needed to make decisions. With the proper experience and authority, they will have the knowledge and ability to be creative on the more difficult and challenging risks.“
Jeff Todd, President, Insurance Management Consultants, Inc. (IMCI) Charlotte, North Carolina http://www.imcipls.com states, "Each insured is different in their own way in their insurance needs. You have to select a carrier based on their specific needs today, but consider their requirements for tomorrow as well. As an example, I currently have one firm that their risk profile had changed dramatically in the past year based on; project types, using a design-build delivery process and a $5+ million insurance limit required by contract. The number of insurance carriers with the experience, ability, and the willingness to offer terms under those conditions was dramatically reduced. Based on a short list of carriers, you must compare policy features, claims handling ability and expertise, risk management program and services along with premium. You will find the more experienced and seasoned underwriters and carriers with the ability and appetite to write the more challenging accounts."
Cavignac adds, “So why wouldn’t a design professional switch to one of these “newbie carriers” to save some money? After all, they can just switch back if these companies withdraw from the market. Unfortunately that is not always the case.
Although price is extremely important, especially in tough economic times, you are buying insurance to protect your company if you have a claim.
- As mentioned above the quality of some of the new players leaves a lot to be desired…who do you want protecting the financial future of your company? An experienced claims adjuster or some random claims adjuster who can’t spell “architect” or “engineer”.
- If a company does exit a line of business or goes out of business, the quality of personnel dealing with your existing claims is going to drop off also.
- Finally, we are heading in to a hard insurance market. Coverage is going to be more expensive and more difficult to get. Companies that abandon their “preferred markets” will be closely underwritten and may not be welcomed back with open arms."
Robert D. Camilleri, CIC , President, Camilleri & Clarke Associates, Inc., Wethersfield, Connecticut http://www.camillericlarke.com states, “I believe the first thing and the most important item for firms is to only work with an agent who is knowledgeable of the A/E professions - who truly understands their makeup and risk exposures. Anyone can sell them an insurance policy, but it is the expertise of the agent in the A/E profession that really counts. An agent who can act as their risk manager thus saving them time and the expenses of going through a claim. This value added service makes the relationship number one even before price considerations.”
Specialized A/E Agents
There are very experienced and specialized A/E agents and brokers in the U.S. and London that can assist firms in purchasing insurance.
Also, there are two well-regarded and specialized A/E insurance agent networks supporting specific states and regions; PLAN (http://www.plan.org/) and ProNet (http://www.aepronet.org/). An agent for your state/region can be located on these websites.
Each agent that provided their expert advice and guidance for this article is a member of PLAN or ProNet. A special thanks to each of these agents for their time and excellent insights.
Conclusion
There is no question it has been a challenging period for many design professionals. However, firms are reminded to remain focused on implementing "effective risk management practices" that includes the selection of your professional liability (PL) insurance carrier. Professional liability insurance is a vital part of any firms operations and risk management program and should not be viewed only as a line-item expense.
The economic environment has forced change upon many industries including the design and construction sectors. Risk factors have been altered and firms must adapt to these new exposures. An experienced and service focused insurance carrier stays on tops of these exposures with a program that helps mitigate risk and improve overall performance.
Also, it is only a matter of time before the consolidation that has occurred in the A/E industry hits the insurance market. Once that happens, firms may find themselves with a carrier that no longer offers A/E insurance or with a carrier that does not have the experience and services needed to effectively manage your exposures. With the assistance of a specialized A/E insurance professional, firms can apply the same “quality selection process” when selecting an insurance provider that should be used when selecting any other business partner. Remember, price is important, but quality is king.
If you have any questions or comments, please feel free to contact SmartRisk. mailto:tcorbett@smartrisk.biz
You are welcome to forward this newsletter to others who may be interested.
Thank you.
|
artRisk