When Selecting an Insurance Carrier


Based on a survey conducted by the American Council of Engineering Companies (ACEC), American Institute of Architects (AIA) and the National Society of Professional Engineers (NSPE), there are more carriers than ever before in the specialized A/E insurance segment. Industry responses varied however; insurance professionals stated there are now between 45 - 60 providers compared to around 17 five years ago. This is at a time when the A/E market is shrinking based on economic conditions with reducing annual revenues and an increase in merger and acquisition activity. 

Insurance Capacity and Options

The increase in carriers creates an enormous amount of insurance capacity (amount of available insurance) and selection options for A/E firms, all now competing for a smaller pie of premium dollars. On the down side, selecting a carrier has become more difficult with wide variations and low cost providers looking very attractive for cash strapped firms. Firms are cautioned not to be shortsighted when making this important business decision. Firms should look well beyond premium costs and evaluate vital characteristics of carriers. In this specialized insurance market, there are significant differences between experience, expertise, policy features and services. As with A/E firms, this is a specialized sector and has a limited talent pool of experienced professionals. With the dramatic growth of carriers in recent years, many may have little experience in this specialized sector.

 

Financial Imbalance

Based on industry trends, claims start developing three to five years after policies are in place for a carrier. With the financial imbalance of fewer and smaller A/E revenues, and premiums, an increase in severity and/or frequency of claims driven by economic conditions and the more than doubling of carriers, it is only a matter of time before there is a reduction or consolidation of carriers. Firms are cautioned that they could find themselves with a carrier that is no longer interested in writing A/E’s and/or another carrier has purchased their book of business. 

 

Quality Selection Process

When A/E’s are selecting an insurance provider, the best approach firms should use is the same “quality selection process” they use and ask of clients when selecting project consultants and contractors. You want team members to be selected based on “capability” and “quality” not a “low-bid” selection process.

 

Selection Categories

 

Financial Stability: An important factor in today’s economic environment is confirming financial strength and stability:

• What impact has, or is the financial crisis having on the insurance carrier?
• Is it affecting their debt and financial strength as assessed by A.M. Best Company, Standard & Poor’s, Fitch Ratings, and Moody’s Investors Services?
• Is the carrier rating under watch or do they have a positive outlook or negative implications?
• Have the carriers’ surpluses been strained by investment losses, both realized and unrealized as well as declining net investment income due to losses? 

Underwriting Staff: While the number of carriers has increased, there continues to be a limited pool of experienced, knowledgeable underwriters. Knowledge of A/E firms and professional liability (PL) insurance is critical. Certain providers may have one or two experienced individuals in the organization. Look beyond the product line manager and look for underwriters with an average of 10 years experience specialized in the A/E PL segment. These are the individuals that will be making the decisions when underwriting your account.

Coverage Features: Insurance policy and coverage features vary. Certain carriers specify coverage features while others indicate there policy offers more coverage with less specified in the policy language. Do not just read the marketing material and brochures provided by the carrier. It is important to have a professional evaluate coverage language and specifically exclusionary features. Marketing material and policies may identify "highlights" in one section then removed or limit coverage in another.

Claims Management: Experience in the A/E PL marketplace is critical for claims managers along with the selection used for local panel counsel. When things are going wrong, you want someone that knows the A/E business to handle the claim. Look for an average of 10 plus years of experience. It is vital to inquire into a carriers claim management experience and practices. Inquire if the carrier allows you to selection counsel or is selection limited?

Pre-Claims Assistance: A critical service at anytime, however more important when litigation is on the rise. This service assists firms when things “may” be going wrong or when assistance or guidance is needed when no formal claim has been made. This is an important service option that should be offered at “no cost” to insured’s. The quality and capability of this service is based on the carrier’s claims experience and practices, which can vary widely. Inexperience can mean problems that leads to claims. Certain carriers have dollars limits or offer assistance at there discretion.

Risk Management Services: Claims and litigation are costly and time consuming. Before having to use an attorney, it is important to be knowledgeable and incorporate strategies for mitigating risk and liability exposures. Such programs indicate a provider’s commitment, knowledge, and interest in managing risk for insured’s. Programs vary widely with certain carriers offering extensive programs with others offering limited or no services which should be at significant premium savings over full service providers. Others may offer premium credits if firms have implemented risk management programs with the assistance of third parties.

Industry Feedback: Inquire and obtain feedback from other A/E firms and industry professionals: Some carriers have a reputation of being very good while others of being difficult to work with when a claim occurs, or automatically issuing a reservation of rights (coverage may not apply) when a claim is filed.

• Inquire if the carrier has a positive reputation for services and claims handling.
• What is their renewal rate when firms have had a claim?
• Does the carrier have an excellent reputation for claims handling?

One resource is ACEC’s Annual Professional Liability Survey of insured’s. The survey includes firms’ satisfaction with carriers’ risk management programs, pre-claims, and claims-handling processes.

Industry Timeframe: The length of time in the industry indicates a dedication and successful underwriting strategy. However the landscape is changing with newer entrants hiring experienced professionals from the long-term providers. It is always a good practice to request information about underwriters and claims managers; experience, abilities, commitment and practices as indicated above.


Conclusion

During this difficult economic climate, A/E firms are trying to survive and reducing operating costs where ever possible. Firms are advised to make risk management a priority including the process used in selecting your professional liability insurance carrier. Professional liability insurance is a vital part of any firms operations and should not be viewed as only a line item expense. When selecting your insurance provider, ensure your use the same quality selection process you would use for any other business partner.

 
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Thank you.