The market is hardening, the market is hardening!
We see this news in the Wall Street Journal,
our trade magazines, local newspapers, and especially from our insurance
brokers. It is true. The insurance industry is seeing significant increases
in the premium they can charge for a given risk. The amount of increase
depends on the risk. If you are just now renewing your professional liability
insurance (PLI), you may be feeling very frustrated at the quotes you
are receiving . . . however, be grateful that you are not trying to buy
coverage for a fleet of airplanes!
What do you need to do and be aware of to minimize
the sticker shock this year? Some ideas that you might find both practical
Start the renewal process early. In a difficult
market, you want your broker to have your completed application in the
hands of underwriters with plenty of lead time. Consider 45 days prior
to renewal as an absolute minimum.
Spend real quality time with your application. Although your broker
will explain a lot to your underwriters, the application is what they
are reading when they come up with a quote. Some things that you might
1. Point out your firm's risk management virtues.
Do you practice "safe design"i.e., do you have
good processes in place to which everyone adheres?
How do you respond to your client's problems?
How do you handle contract negotiations?
Do you use AIA standard agreements and forms?
2. Carefully consider the allocation of your total
Break out your reimbursable expenses
Break out your consultant's fees. Since they carry their own insurance,
the exposure for your carrier is lower.
Break out fees for other areas of reduced exposure, such as master
planning, facilities management, feasibility studies, program management,
Break out fees for projects that have been abandoned.
Ask your broker if your total revenues can be reduced by your write-offs.
3. Carefully consider the different categories of
services you provide and be accurate in allocating percentages to each,
as well as using accurate descriptions. An application that indicates
"40% residential" will raise questions in the underwriter's
mind. Saying "40% custom single-family detached housing" will
be looked upon more favorably. One which states "40% three-story
wood-framed condominiums" will generate a higher quote!
4. When identifying current and past claims, be
sure to give all pertinent information, including how they have been/are
expected to be resolved, lessons learned, and how you have modified your
practice to avoid the same problem in the future. Be objective. The underwriters
want an accurate picture, not an overly optimistic story that will become
an embarrassment at your next renewal.
If you incorporate mediation into your contracts, ask for a mediation
credit or reimbursement of certain mediation costs in the event of a mediated
Consider multi-year policies (not as readily available, but they
may still be possible). These can be either with a single limit or with
an annual limit, which is usually preferable but more costly.
Consider how high a deductible is reasonable for your firm. Remember
that a higher deductible is likely to bring your premiums down as well
as cause you to pay more attention to issues of risk. You might also look
at an aggregate limit for your deductible expenses to cap your top end
Some smaller practices can still obtain "first dollar defense,"
meaning the firm does not pay anything if the judgment is in its favor.
Consider what limits of coverage you truly need. If you decide
you need $1,000,000 in coverage and a client is adamant that you carry
$2,000,000, consider a project-specific excess policy or a project-specific
policy rather than paying premiums for increasing your entire practice
policy to $2,000,000.
For particularly high-risk or unusual projects, you might consider
a project-specific policy. This has the benefit of removing the fees associated
with the project from the calculation of premiums for your practice policy,
keeping them lower. It also may have the benefit of allowing you to pass
through these costs to your client as a project specific reimbursable
Market the account. Be sure your broker approaches multiple carriers.
Though long-term relationships with your carrier are generally beneficial
(loyalty does count), you do need
to be aware of your options.
Level of coverage. Look closely at the coverage that is being offered
by each carrier. There are differences. There are also options available
at a price, which can be added to a standard policy, tweaking it to fit
Look carefully at the financial strength of your carrier and its
commitment to the professional liability market. It can be a very rude
shock to find your carrier has gone bankrupt or is no longer writing professional
Ask about premium financing. There are a wide variety of options
available which can take the sting out of a large premium.
Discuss paying your broker a set fee rather than having his/her
reimbursement coming from a commission.
Develop and implement sound risk management practices in your firm
and make them a part of the firm's culture. This will ultimately reduce
claims, give you a better track record with your underwriters and hence
lower premiums, and keep your clients happy.
Though not a panacea guaranteed to provide minimal
PLI costs, the issues enumerated here can help. When thought through and
applied conscientiously and in a timely manner, they will have an impact
on your practice through reduced exposure and reduced long-term expenses.
Copyright 2001 The American Institute of Architects.
All rights reserved.
Ben Fisher, AIA, is
a vice president and the director of risk management for Gensler.
He is also the 2002 vice chair of the AIA Risk Management Committee.
The Risk Management Committee takes seriously its mission to monitor
trends within the professional liability insurance industry, and
it welcomes suggestions and comments from members regarding any
aspect of risk management. Contact
Jay Stephens, Esq., the AIA's General Counsel, 202-626-7379.
Liability Insurance Trends
by Jennie Sue Brown, FAIA, AIA Risk Management Committee
by AIA Risk Management Committee member Jim Harris, AIA, answers
the question, Why are our professional liability insurance premiums
Your relationship with your professional liability insurance carrier
is a factor in both your coverage and your premium. Here
is some advice from a/e ProNet on choosing a carrier and developing
a good working relationship.