| Reducing Your Professional Liability Costs |
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| Written by Tim Esler |
| Sunday, 03 January 2010 16:53 |
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The majority of architect, engineer, and environmental consulting firms are looking closely at their overhead with the intent of cutting costs. After rent, payroll, and health insurance, professional liability insurance premiums as well as the variable costs included with deductible obligations (post loss) are the larger single line items.
The majority of architect, engineer, and environmental consulting firms are looking closely at their overhead with the intent of cutting costs. After rent, payroll, and health insurance, professional liability insurance premiums as well as the variable costs included with deductible obligations (post loss) are the larger single line items. Professional Liability insurance costs are largely influenced by the way in which you or your firm is presented during the Professional Liability application process. However, you should realize that this process is a "beauty pageant," where subtle changes or clarifications can have material impacts on costs- and, of course, any savings is pure profit. Below are some of the ways in which we help our clients better describe themselves to PL underwriters during the application process. 1. Make a clear outline of how you handle appropriate percentages. Although this may appear a simple task, but clarifying various elements of your service might reward you with substantial savings: Architect- To you (the architect), it may seem accurate to describe yourself as 100% architectural. But in reality, I can virtually guarantee that you provide specifications of interior fixtures, finishes, or non-structural details. I would classify these services as Interior Design- a much-lower rated service type yielding much lower costs. Owners' representatives, client advocacy services, public advocacy, testimony and reports before zoning/planning boards are all services provided by an architect that, in themselves, do not involve architectural design per se. (There are too many other similar examples to list here.) Engineers involved in Bridge Design may not realize that some of their services might actually be described as Highway Design or classified as "reports/opinions" which are both lower-rated classifications. 2. It's important to clearly illustrate your direct reimbursibles. Reproduction costs, travel, per diem, etc. are all direct reimbursibles (DRs). 3% - 6% is the industry standard for DRs, and engineers working with the Department of Transportation can have higher than 10%. Identifying these costs will reduce your ratable base and corresponding premiums. Many of my clients do not track these costs because they don't want to seem cheap to their clients, which is OK, however, you can still give an estimate of what percentage of your gross these DRs make up. 3. Identify any abandoned projects. There are a plethora of reasons for abandoned projects including loss of developer funding, changes in plans, sale of the undeveloped property, and bankruptcy among others. Beware of carriers that require you to "list" abandoned projects and exclude coverage for related claims. Although unlikely, it is always possible to get sued even if the project never goes forward. Instead, opt for an insurance carrier that allows for you to identify any associated revenue and remove it from your "ratable revenue" to yield lower costs. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Timothy Esler, CPCU, is a Principal with Fenner & Esler Insurance Agency, a boutique insurance brokerage and risk management organization representing architects and engineers countrywide. Tim's complete original articles are published in The Zweig Letter. |