REPORT

Minimize Risk - Maximize Performance
August 2011

Live Surveys 

Take 2 minutes and compete these 10 question, radio button surveys. Results will be provided in a future newsletters,  articles and industry training sessions. 


Economics Impacting A/E's


Current Responses:
 
   81%: Difficulty Getting Paid  
   20%
: Freezing All Salaries
   28%: Cutting Expenses
   28%: Not Obtaining Proper   Fees 


Economic Survey Link



Green Project Survey


Current Responses:


90%: Increase Next Year
50%:
5 Projects Annually
    33%: Green Revenue >20%
    22%: Return on Investment 
        Biggest Risk 

18%: Commercial/Office Projects
  
  

Green Survey Link



Survey Reports 


 *A/E Law Firm Survey*

 Detailed survey of 20 A/E Law Firms across the United States providing regional and national perspectives on legal developments, claims and root causes driven by economic conditions with loss prevention recommendations and other insights from these legal experts.  


A/E Law Firm Survey Report Link



*A/E Survey Report*
Insightful survey report of A/E firms and how economic conditions are impacting business opportunities and affecting business decisions today.  

A/E Firms Survey Report Link


*A/E Insurance Carriers
Survey Report"

Survey of 17 insurance carriers specializing in A/E Professional Liability (PL) insurance identifies current economic risk factors
, services offerings, claim trends and recommendations for reducing liability exposures.  

PL Insurance Carrier Report
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Insurance, Risk or Professional Liability (PL) Question?   

Ask SmartRisk

How Has the Economy Affected Your Firms Risk-Rating?

 

Economic conditions hit the world’s largest financial superpower with Standards & Poor’s making a historic decision downgrading the U.S. credit rating. This decision was driven by deficit and budget problems combined with the political logjam in Washington and its inability in making the right decisions to correct the problem.

 

How has the economic climate impacted your firms risk-rating? Are A/E firms making the right decisions today to manage risk effectively? Firms have been forced to make changes based on reduced revenues and fewer projects opportunities. In an effort to make ends meet, firms are trying to become more efficient with fewer resources. Difficult decisions are being made to cut costs and overhead including reducing staff levels, cutting and freezing salaries and reducing hours and workweeks.

 

Based on a recent SmartRisk Survey of design professional firms, the following are changes firms are making driven by the economic climate:

 

75%: Economic climate has had a negative impact on the firm

55%: Gross revenue down >25%

35%: Staffing reduced >50%

16%: Freezing all salaries

15%: Reduced hours and workweeks

 

Firms are also making adjustments to business practices and operations. A/E’s identified the following in the SmartRisk Survey as the biggest challenges and risks driven by economic conditions:

 

81%: Difficulty in getting paid for services

30%: Not obtaining proper fees for services

25%: Reduction of staff at the technical level

25%: Staff reduction negatively impacting performance

20%: In an effort to obtain work, not pushing back on contract provisions

18%: Low profit margins driving the use of less experienced staff

 

Compounding this problem is slow economic conditions often produce an increase in litigation against design professionals based on negligence, error, and omissions with professional liability (PL) policies being viewed as a cost recovery asset. When making changes, it is important firms are aware of the potential impact of the adjustments they are making and seek guidance when making these difficult decisions. 

 


Identifying Risks


Based on feedback from industry professionals including - A/E firms, insurance carriers, agents, attorneys and professional associations - risk assessments are helpful tools for identifying risks and making recommendations for mitigating exposures. Once risks are identified, methods are indicated for improving performance, reducing liability exposures.

 

Certain assessments evaluate a few risk categories while others provide a more in-depth analysis-evaluating a number of key risks and liability exposures at the operational level. The more detailed and helpful risk assessments offer a comprehensive analysis of business practices, operations and risk management strategies, as well as conduct interviews with key personnel of the firm. It is important firms are evaluated in targeted exposure categories based on their services and projects types.

 

Just like any professional service, there are different depths and types of A/E risk assessments in the industry and the expertise by the firms performing these assessments. Similar to the importance in selecting a specialized agent, attorney and insurance carrier, firms should use the same selection process when selecting a firm conducting a risk assessment. Your insurance agent and insurance carrier are good resources in providing guidance as well as having a list of approved providers.    

 

 

Risk Assessment Applications

 

Risk assessments are valuable analysis tools and have been used with great success in the following challenging situations:

 

  • Changes in staffing levels
  • Entering new service and project segments
  • Claim history and insurance non-renewal (example below)
  • Merger, acquisition or selling firm
  • Claims and lowering insurance costs (example below)
  • Improving overall performance and reducing risk

 

 

SmartRisk SR Risk Assessment

 

As mentioned, there are various types of risk assessments available in the industry. However, based on over 25 years of experience in the design, construction and insurance industry, SmartRisk recognized a need for a more in-depth, comprehensive, firm specific analysis tool for design professionals. This need caused the creation of the SR Risk Assessment - a copy written process developed by SmartRisk.  

 

The SR Risk Assessment has been called a “state of the art” risk analysis tool by industry professionals that includes a qualitative and quantitative process with risk-ratings for specific risk categories derived from an extensive examination of industry claims. Upon completion of an in-house analysis of operations and practices including interviews with key personnel, a firm specific SR Risk Assessment Report is developed with associated risk-ratings (low-moderate-high) for each category - identifying program strengths - areas of concern - as well specific recommendations for mitigating future risk and liability exposure. Each report is tailored to each firm and every A/E firm that has gone through the process has rated it excellent and recommends it to other firms. 

 

A/E Firm Comments

 

Wade Killefer, FAIA, Principal, Killefer Flammang Architects (www.kfarchitects.com) said “SmartRisk performed an SR Risk Assessment of our firm identifying potential risks and liability exposures. Based on the report, a Risk Management Plan was developed mitigating liability exposures with specific attention given to our higher risk condominium projects. The strategy minimized our risk and saved our firm over $100,000 in insurances costs in 2 years. Tim is an advocate for our firm and the industry; I heartily recommend his services to other A&E firms.”

Nick Cinalli, PE, SECB/President & CEO, O’Donnell & Naccarato (www.o-n.com) a structural engineering firm based in Philadelphia stated “SmartRisk’s SR Risk Assessment process was very helpful and beneficial for our firm. It brought us together as a group, identifying items where we should focus our attention for mitigating risk-improving performance. We obtained favorable insurance terms from our insurance carrier for completing the risk assessment. I would recommend the SR Risk Assessment to other A/E firms.”

 

Claim History Increasing Insurance Costs

 

SR Risk Assessment has been very successful in helping firms with a claim history and lowering insurance costs. One firm with several claims over the past five years obtained a significant insurance increase from their carrier. Once a risk assessment is completed identifying recommendations for mitigating future risk, a firm specific plan was developed with actions items and time-lines. The SR Risk Assessment Report and risk management plan was reviewed with their insurance carrier on the efforts that will be taken in rehabbing and enhancing risk management practices. The carrier lowered the firm’s insurance premium the next year based on their improved risk management efforts.

 

Non-Renewal of Insurance Notice

 

One firm was put into a very difficult position when they obtained a non-renewal notice from their insurance carrier based on past and current claims and expenditures. By contract, and to protect a firm’s financial viability, professional liability (PL) insurance is needed. SR Risk Assessments have proven to be very helpful when firms obtain a non-renewal notice. In non-renewal situations, insurance carriers stated they would even not offer terms unless an SR Risk Assessment was conducted by SmartRisk based on the comprehensive nature of the report. The independent risk analysis identified firm specific measures for mitigating future risk and exposures. Based on this information, an effective risk management strategy was developed for the firm.

 

Agent Comments:

 

Dan Bradshaw, Principal of Benchmark Insurance (www.benchmark-insurance.com) and past President for Professional Liability Agent Network (PLAN) recently used an SR Risk Assessment for a challenging account.

 

“ A client with a claim history had their Professional Liability (PL) renewal coming up. The insurance carrier issued a conditional renewal, meaning a rise in premium and/or deductible. Last year, no other carriers would offer a quote or terms. An SR Risk Assessment was conducted and presented with the PL application. Based on the reports findings and recommendations, four carriers offered terms with several quotes 30% off the “expiring” premium. Without the SR Assessment Report, the renewal premium would have been significantly higher.

The SR Risk Assessment process has proven to be very helpful and I plan on using it for several more clients in the near future.”

 

Keith Fitschen, Vice President-A&E Professional Division, Marquis Agency (www.marquisagency.com) identified several situations where conducting an SR Risk Assessment would be helpful for his clients. "Firms that have gone through changes in staffing (+/-), business strategy/marketing initiatives and overall reorganizations would all equally benefit from the independent risk analysis. Further, for those clients who have experienced an above-average claims history, conducting a risk assessment would identify areas for improvement; reduce risk and exposure, whilst enabling the firm to receive both more favorable insurance terms and underwriting credits at the renewal. Now more than ever, educating the team members across all levels should be at the center of any client’s risk management program." 

 

Financial Benefits

Firms completing a SR Risk Assessment have obtained financial benefits by improved performance and profitability through implementing effective risk management solutions. Benefits have also included lower insurance cost through favorable terms, premium credits and/or cost-sharing by certain professional liability (PL) insurance carriers. These financial benefits are only obtained if a qualified professional approved by the insurance carrier conducts the risk assessment.

 

Insurance Carrier Comment:

James Schwartz, Esq., heading up Beazley Insurance Company's A/E program (www.beazley.com/A&E) for the U.S. states “from our perspective, an SR Risk Assessment is a valuable tool. With risk management strengths, but more importantly, areas of potential concern identified with recommendations to minimize future liability exposures, the firm should become a better risk. Beazley offers insurance terms for qualifying firms including a 50/50 co-sharing up to the first $5,000 incurred if certain conditions apply.”

 

Conclusion

We have seen how the U.S. credit rating has been lowered based on the governments inability to make the right decisions and adjustments. A/E firms – are you making the right decisions? Has this economy changed your risk profile? Sometimes changes are small, made over a period of time and difficult to see because we are so close to the issue. These changes can be impacting a firms overall performance and increasing risks. Risk assessments have proven to be a very helpful tool with the analysis of key categories from an independent perspective of current industry risks and exposures. Firm specific solutions are developed targeting areas in need of improvement.

 

If you are interested in obtaining more information on SmartRisk’s SR Risk Assessments, please conduct us.

 


Please feel free to forward this newsletter to others who may be interested.


Thank you.


SmartRisk
 

Our objective is improve performance and profitability through industry and risk analysis and developing costs effective solutions for design and building professionals. 


As an advocate for the industry, our services are designed to meet the unique challenges of the industry today; enhancing business performance through improved risk management strategies. We collaborate developing customized solutions resulting in reduced risk, strengthen performance, profitability and lower insurance costs.

Please feel free to contact us with any questions.
 
Timothy J. Corbett, BSRM, MSM, LEED GA
President
tcorbett@smartrisk.biz

www.smartrisk.biz
 
T: 626-665-8150

Copyright apply. This newsletter is for information purposes only and should not be construed nor relied upon as regulatory or legal advice. Readers should consult with appropriate counsel regarding their specific situations and circumstances. 

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