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