7 rules to follow to improve your professional liability rates
by Robert J. Connor
March 24, 2016

According to the American Institute of Architects (AIA), nonresidential building spending in 2015 was close to $360 billion, with forecasts estimating this number to hit $390 billion in 2016. The 2016 Dodge Construction Outlook also recently predicted a 9 percent gain in this sector. Multifamily housing, as well as commercial and institutional building, will expect to benefit from this surge, according to Dodge Data & Analytics. 

Now for the bad news. While overall revenues are on the rise for design firms nationwide from the increased spending in this marketplace, this financial growth will almost assuredly be accompanied by an increase in premiums paid for architects/engineers (A/E) professional liability (PL) insurance. In addition, the building sectors now experiencing the greatest gains are the ones typically associated with the most exposure to claims, which, unfortunately, will also negatively affect insurance costs.

A/E PL insurance should be an integral part of every design firm’s risk management program to avoid or minimize the impact of claims for professional negligence that can increase with the uptick of construction activities. Managing the cost of A/E PL insurance begins with a thoroughly completed application.

 

The truth is badly executed A/E PL insurance applications can cost design professionals unnecessary amounts of money. This is due to the failure to take the time and effort to fill out applications accurately. It is no surprise that people generally dislike and try to spend as little time as possible retrieving and reviewing all the necessary paperwork involved in the process. This is a big mistake that can cost a design firm a significant amount of money. In addition, if accurate and complete information is not included on an application, it could even result in issues that jeopardize the policy’s coverage.

With respect to professional liability applications themselves, applicants should view the forms as “invitations” to portray their companies as well-run, proficient and exceedingly professional operations deserving of competitive premiums. Underwriters will not search for this information. It is up to the organization to offer all these details in a cohesive, intelligent format that merits the insurer’s respect and attention. For instance, here are some simple rules to follow when compiling the required company background details:

  • Do not view the process as a burden—Consider the application process as an important tool for reviewing the past year’s activities, evaluating your performance and looking for areas of improvement.
  • Create a reminder—Start gathering and inputting application details 90 days before the policy’s renewal date. Begin with last year’s application and make the appropriate revisions. 
  • Make sure any changes in project types, disciplines or services are appropriately reflected in the renewal application—Use this process to help uncover opportunities and set future goals. 
  • In addition to providing a full summary of claims and potential claims, take the time to physically write down and review lessons learned—Underwriters want to work with organizations that manage risks seriously and learn from challenges. The good thing is that once a summary is produced, it doesn’t need to be done again. So make sure it is honest and accurate the first time. Eliminate the need for added questions or discovery. Detailed claim and potential claim information presented in an intelligent, organized manner demonstrates the commitment to growth and willful elimination of future risks. 
  • Include all requested attachments the first time—It is time consuming and a hassle for underwriters to continually reach out for “full picture” information. Make it easy for them and your company. The reward is a competitive quote.
  • Write legibly—What is the point if the underwriter can’t even read the application? What kind of professionalism and dedication does that show?
  • Always ask to review documents before signing even when working with a specialist broker—After all, no one knows your business better than your firm.

Furthermore, seek the advice of an insurance broker that specializes in A/E PL insurance and thoroughly understands the A/E marketplace as well as the latest federal, state and local regulations, guidelines and legislation that impact design firms. As an example, the CFO of a large design firm was seeking advice on an expiring policy. After reviewing the company’s website and speaking to the executive, it was noted that the PL application did not include a specific service that represented 30 percent of the company’s revenue. Furthermore, the state in which the firm was located had passed a statute that provided “limited sovereign immunity” to design professionals offering this service. More specifically, the statute capped the liability of a design professional providing this service at $100,000. This simple notation on the renewal application by the broker resulted in a more than a 20 percent reduction in the renewal premium.

Although outwardly time-consuming and tedious, PL applications offer design firms the opportunity to demonstrate why their firm is a better-than-average risk deserving a more competitive premium. The good news is the process gets easier with each successive renewal, since there’s no need to reinvent the wheel each time around.

The right A/E PL insurance program coupled with the appropriate carrier can be a valuable asset used by architects and engineers to not only avoid or reduce claims, but also increase profitability. The goal is to take full advantage of all the risk management and practice management products and services offered by carriers so that A/E PL insurance premiums achieve more than just a policy—they provide a partner that helps firms succeed and prosper.

But, the whole process can only begin with a carefully completed and well-organized application.