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Marketing
Design professionals see new options in the soft market
Now can be a great time for agents to help architects and engineers shop their coverage
By Phil Zinkewicz
Okay, insurance journalists have been writing about it for the past five years and readers of industry developments have been reading about it for the same amount of time, so by now we all know that the property and casualty insurance industry is in a soft market. Those who are not aware of this are probably checking their local TV Guides for the next new episode of “The Beverly Hillbillies.” There are always trouble spots, of course, even in soft markets, but even those exposures are a lot less troubled than they were in the previous hard market, which seems a very long time ago.
During soft markets, a number of phenomena usually occur. In the beginning of the soft market, vowing that they will not give in to excessive competition, some old-line insurers promise to “hold the line” on rates and not give in to newcomers who are slashing rates to get the business. These insurers often go out of business, lose considerable market share, or eventually bend to competitive forces and slash their prices even more than their rivals.
Some insurers look to the stock market to replenish the money they may lose on the underwriting side. In recent years, however, the stock market has not performed all that well. Producers—retail agents, wholesalers, program administrators, managing general agents, and so on—look to replace dwindling commissions during a soft market by being inventive and finding new people who need “specialty” insurance and who can fit into a program. So far, no one has thought of insuring hot dog vendors in New York City. Or has someone?
But what about the buyer of insurance? Well, the buyer of personal lines insurance probably doesn’t even know the market has softened for the first year or two; and, besides, he or she is probably loyal to the agent of record and doesn’t want to shop around. Even the small to medium-sized commercial insured doesn’t shop around right away.
But in a soft market that has hung around for half a decade, some insurance buyers might be in the mood to take advantage of low premiums, either because they’re hurting financially and could do well by saving money on the insurance end, or just because the other guy is getting a better deal. In a prolonged soft market, it might behoove the agent or broker to suggest a change of carrier, or risk a possible E&O claim. After all, the producer is working on behalf of the insurance buyer. Right?
Eye on architects and engineers
Architects and engineers are among those groups that might be able to benefit from the current soft market. The construction industry is on a downslide because of the economy, and insurers are actively chasing after the business that is still out there.
What factors must be considered by both the insured and the agent or broker when architects and engineers begin looking around for a new insurance carrier?
That question is dealt with in great detail in a treatise authored by Melissa Roberts, vice president of Euclid Insurance Agencies, Itasca, Illinois, who has specialized in providing insurance, loss control and risk management services to design professionals since 1984. The treatise is part of the collection in the Best Practices series of the American Institute of Architects (AIA).
Says Roberts: “Most professional liability insurance policies are written on a ‘claims-made’ basis. That means, quite simply, that the policy coverage is limited to claims made when the policy is in force. Unless you or your insurance agent notifies the insurance company of a potential claim before the policy ends, you have no protection for the claim after the policy has been cancelled or expired. That is true even if the claim or the alleged design error occurred during the term of the policy.”
Most policies will provide coverage for professional services that were rendered before the start of the policy period, extending back to a specified date known as the retroactive date, says Roberts. “But again,” she says, “in order to be eligible for coverage, claims pertaining to such prior acts must be made while the policy is in force.”
Roberts points out that the terms of insurance policies vary from one company to another as they differ from state to state. But generally, a professional liability claim needs to meet three criteria to be eligible for coverage: There must be an active claim; the policyholder must not have knowledge of the claim before the start of the policy period; and the professional services that led to the claim must have been rendered after the retroactive date of the policy.
As advice to both insureds and their brokers, Roberts says: “Allow yourself enough time to shop the market, evaluate your options and effect the transition to a new policy. Begin at least 60 to 90 days in advance of the expiration of the current policy.”
Policy comparison is key
Finally, the insured should work with the broker in putting together a side-by-side analysis of the policy currently in force and the new policy being considered. Roberts says that, at a minimum, the list should include the following:
• The retroactive date
• Deductible options and their cost
• Persons/entities covered
• Management and financial ratings of each insurer
• A clear definition of “professional services”
• Differences in exclusions
• The coverage territory
• Provisions that may reduce the deductible, including the amount and under what circumstances
• Payment to the policyholder for attendance at claim proceedings, including the amount and under what circumstances
• Number of years each insurer has offered policies to design firms
• Included benefits such as risk management support services, contract review and professional development seminars
• Whether the policy includes a “hammer clause”—what happens if the policyholder disagrees with the insurer’s desire to settle a claim? Does the policyholder have an unequivocal right to withhold consent to a settlement without risking a reduction in coverage?
Concludes Roberts: “Many sources are available to help policyholders and brokers gather and process information. Most professional liability insurance companies offer abundant information on their Web sites, and much of it is available to the public.”
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