Engineering firms are using a broad set of criteria in selecting professional liability insurance (PLI) insurers—beyond premium costs—and are regularly turning down or not pursuing work due to concerns about potential risks.
These are among the key findings of the 2023 PLI Survey of Member Firms for Fiscal Year 2022, conducted by the ACEC Risk Management Committee. This survey, which produced 439 respondents, took place in April and May 2023.
When selecting or evaluating insurance carriers, member firms consider several key attributes, including pre-claims assistance, claims handling, and the carrier’s risk management programs.
“We actively engage in pre-claims assistance on any significant potential claim,” says Tim Haener, chairman and corporate risk manager at J-U-B and vice chair of the Risk Management Committee. “Our carrier assigns counsel to assist in our evaluation and response to the issue, which gives us greater confidence in our approach to resolution and protects us from making a blunder.”
The insurance company pays the legal expenses “because they win when we can effectively prevent an issue from becoming a significant claim,” Haener explains. “That’s our goal: Get issues identified and resolved so we can all move on with the client relationship intact.”
At BGC, trust and relationship-building are critical in the preclaim setting, “as that helps influence decision-making, risk escalation, and go/no-go decisions,” says Sheldon North, the firm’s corporate affairs and risk management lead.
As for carriers’ claims handling, “having our primary insurers’ panel counsel be known and respected by our board of directors makes for more rapid risk-informed decisions,” North says. “We have been very pleased with our primary insurers over the years, and being able to select which panel counsel we use is critical.”
When considering carriers’ pre-claims assistance, engineering firm Hanson looks for responsiveness and an active partner in evaluating potential claims and helping to resolve issues with clients, says Jim Messmore, senior vice president and infrastructure market principal at the firm.
As for risk management programs, Hanson looks for breadth of topics offered; ease of delivery of content to the firm’s personnel; and the ability to deliver, track, and maintain records of training that have been delivered and completed by personnel, Messmore says.
“The pre-claims assistance provided by our carrier meets our needs by providing early guidance and expertise, protection under attorney-client privilege, and payment for issues designated as loss prevention,” says Eric Huber, senior risk manager at Gresham Smith. “The claims handling provided by our carrier meets our needs by providing qualified panel counsel, understanding of reputation and client influences, patience, a reasonable settlement process, and a trusting relationship.”
In today’s business environment, “firms need to focus on the overall value of the program in terms of time saved and expertise provided in support of their practice,” says Kevin Collins, design and construction leader and managing director at managing general underwriter Victor.
Outside of reasonable pricing, Collins thinks clients should consider factors such as claims handling and services, overall risk management guidance and services in support of the firm’s continued development and knowledge, and coverage that addresses the unique aspects of the firm’s practice. A provider should address areas of deductible obligation, defense outside the limits, and rectification coverage.
The latest PLI survey found that there was a drop in overall satisfaction of claims handling compared with the year prior, Collins notes. “Claims handling and communication is a greater need today than in recent years, as some of the complexity of social inflation, cost increases to repair, supply chain, and other areas of impact have placed strain on the insured versus carrier relationship at times,” he says. “I believe that this will increase back to prior levels over time, but current market conditions are putting a strain on getting to a more consistent outcome for clients and firms alike.”
“A well-handled claim allows a firm to continue its operations with minimal disruption while ensuring relationships with key stakeholders are preserved throughout the claim process.”
STEPHEN AGNEWPRESIDENT OF THE BOARD OF DIRECTORSA/E PRONET
One of the most striking findings in the PLI survey is that half of the member firms said they turn down work sometimes or frequently because of potential risks.
Member firms overall appear to be satisfied with their PLI carriers. A large majority (88 percent) of survey respondents said they didn’t change PLI carriers during their most recent fiscal year.
But inflation has hit virtually every aspect of life, including insurance premiums, and the cost of premiums could influence decisions.
“A&E professional liability insurance rates continue to climb in response to rising claim costs driven by economic and social inflation,” says Lawrence Moonan, executive vice president and COO of insurer Berkley Design Professional. “Most firms will see rate increases to the tune of 5 percent or greater.”
Finding a lower premium is an important reason why firms change PLI carriers, but there are other factors.
“While a competitive premium is an important consideration, firms should also be confident that their insurance provider offers broad coverage, adequate capacity to meet contractual insurance limit requirements, and risk management tools and support,” Moonan says. “It is also critical that their carrier has the claim expertise to respond and protect the firm’s assets and reputation when claims happen.”
Any time insurance carriers cut back limits and change terms, such as by adding higher deductibles, brokers and insureds have to look at a possible change, says Ken Estes, senior vice president and risk consultant at Cadence Insurance and president of the Professional Liability Agents Network (PLAN).
“Limits and deductibles are reasons that are definitely considered. However, we usually see changes when carriers don’t respond well in claims,” Estes adds. “We have seen some change over the years for lower premiums—but generally see those clients move back to a trusted carrier after a rough claim experience.”
“A&E professional liability insurance rates continue to climb in response to rising claim costs driven by economic and social inflation. Most firms will see rate increases to the tune of 5 percent or greater.”
LAWRENCE MOONANEXECUTIVE VICE PRESIDENT AND COOBERKLEY DESIGN PROFESSIONAL
Certain policy terms can influence firms’ decision to change PLI carriers, says Roger Guilian, a senior vice president at insurance brokerage Greyling, which serves as program manager for the ACEC Business Insurance Trust. These include exclusions related to construction activities, a narrow definition of “professional services” that leaves some of a firm’s offerings uninsured, and liability for firms with overseas exposures.
While the decision for a firm to change carriers is often driven by several factors, highest among these is inadequate claim handling, says Stephen Agnew, president of the board of directors of a/e ProNet, a network of independent insurance brokers specializing in PLI insurance and the risk management needs of design professionals.
“We have seen some change over the years for lower premiums—but generally see those clients move back to a trusted carrier after a rough claim experience.”
KEN ESTESSENIOR VICE PRESIDENT AND RISK CONSULTANTCADENCE INSURANCEPRESIDENT, PLAN
“A well-handled claim allows a firm to continue its operations with minimal disruption while ensuring relationships with key stakeholders are preserved throughout the claim process,” adds Agnew, a senior executive at Nexus Professional Risk. “If a carrier is unable or unwilling to provide this level of service, a reassessment should be made at renewal—or even sooner if necessary.”
Broker recommendation is an important factor when selecting a PLI carrier. “A broker that specializes in insuring design professionals is extremely important,” Estes says. “They should be looked on as trusted advisers who know the different carrier forms and how those companies respond when a claim or event happens. Also, a specialist broker knows the importance of client agreements and risk management education for firms.”
An engineering firm’s insurance broker “should authentically see itself—and more importantly be seen by the engineering firm—as a business partner truly interested in the success of the engineering firm,” Guilian says. “Brokering in this space is about so much more than just assisting a buyer with its insurance needs once a year. A commitment to risk avoidance, risk mitigation, and risk management should be top of mind for a broker, and the broker should possess the depth of resources and experience to provide true value-add in that regard.”
A good broker should also provide benchmarking and coverage analysis, Guilian says. “Only a broker with a significant book of engineering firm clients has the capability of maintaining and assessing this data and having enough diversity across its book to be able to tailor it to firms of all sizes and levels of sophistication.”
Broker relationships with insurance companies and their underwriting and claims-handling professionals are among the most valuable benefits a broker can provide, Guilian adds. “These relationships are vital when negotiating renewal terms, especially after loss experience, and when claims arise.”
Specialist brokers in PLI offer distinct benefits to engineering firms, Agnew says. “They possess an in-depth understanding of the specific risks, regulations, and nuances of the A&E field, which generalist brokers may overlook,” he explains. “With a deep and narrow focus, their expertise and market knowledge allow them to leverage long-standing relationships to secure optimal coverage and competitive rates tailored to the unique needs of each firm.”
When asked why their firms turned down or didn’t pursue work, 64 percent cited contract terms. Other key reasons included:
“While all projects include potential risk, the firm’s ability to adequately identify and manage or mitigate risk are key factors in our decision to pursue or not pursue a project.”
ERIC HUBERSENIOR RISK MANAGERGRESHAM SMITH
“While all projects include potential risk, the firm’s ability to adequately identify and manage or mitigate risk are key factors in our decision to pursue or not pursue a project,” Huber says. “Project types or services with high claims activity or other risk factors must be filtered through a firm’s risk appetite, which is often informed by prior successful projects with involvement by key senior experienced design professionals.”
Because of the amount of work available, “firms may feel that they can be more selective with the work they take on,” Messmore says. They might turn down work because of outsized risk compared with a relatively small fee, or if they don’t have the capacity or expertise to do the work or meet the schedule.
In an environment where there are a lot of opportunities to grow or maintain backlog, firms might want to critically review difficult clients that have unfavorable contract language, don’t accept engineering fees that reflect the risk of their projects, or don’t pay promptly, Messmore says.
“That’s our goal: Get issues identified and resolved so we can all move on with the client relationship intact.”
TIM HAENERCHAIRMAN AND CORPORATE RISK MANAGERJ-U-B
BGC turns down work on a regular basis, most often due to its team’s capacity, North says. The firm is in the geotech niche, where demand has outstripped supply for at least 15 years. “This sometimes requires our team to anticipate client needs years in advance,” he explains. “The trend we are achieving in our contract terms with our mining and municipal clients is a more favorable risk balance.”
J-U-B scrutinizes new clients using a go/no-go process, Haener says. Questionable clients include those that are one-offs with no possibility for future work, those that might have questionable financial capacity, those that unreasonably question the firm’s agreements or fees, or those that bring a project outside the firm’s core expertise.
“Our goal is to form relationships with repeat clients that bring good projects with reasonable risk and reward,” Haener says. “I can’t think of any reason to take on a project where the probable risk could be catastrophic to our organization. It only takes one limit-busting claim to potentially wreck our firm and put nearly 500 employees out of work.”
Bob Violino is a business and technology writer based in Massapequa Park, New York.