Reducing Your Professional Liability Costs
Most environmental consulting and A/E firms are carefully evaluating their overhead items to reduce their costs. Professional Liability insurance premiums and the variable costs associated with deductible obligations (post loss) are usually two of the larger single line items after rent, payroll, and health insurance.
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.
I have outlined a few of the ways that we help our clients to illustrate themselves to professional liability 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:
Architects may think they would describe their work as completely architectural, but they often provide specifications classified as Interior Design services which yield significantly lower costs due to the lower-rated service type.
A civil or structural engineer involved in bridge design and inspection is classified under “Bridge Design” as one of the highest-rated service types. Perhaps, some of these services can be described as other service types such as “Highway Design” and there are instances of inspections that can be classified as “reports/opinions” (both alternate classifications are much lower-rated than Bridge Design).
2. Clearly identifying your direct reimbursibles can also help trim costs down substantially. Travel and mileage costs, per diem, reproduction costs, and more are classified as direct reimbursibles (DRs). The industry standard for DRs is 3% to 6%, but some engineers that are working with the Department of Transportation can see their DRs higher than 10%. Showing these costs will of course reduce your ratable base and your premiums by the same percentage. If you do not wish to track these costs to avoid making clients feel that they are being “nickel and dimed”, then you can still include a “best guess estimate” of what the direct reimbursibles will be as a percentage of your gross.
3. Clearly identify your abandoned projects. Over the past year-and-a-half, it would be difficult to find an A/E firm that did not provide design services on a project that will never be built. Projects have been abandoned due to, among other things, loss of funding by developers, changes in plans or projects, the sale of undeveloped property, and bankruptcy filings. Some carriers will make you “list” abandoned projects and then exclude coverage for claims arising from them. Be careful of this. I would not advocate ever placing such a list on a policy for one of my clients. It may be unlikely, but it’s still possible for you to be sued even if the project does not go forward. Other carriers, however, allow you to identify the revenue associated with abandoned projects and remove that revenue from your “ratable revenue,” yielding lower costs.
Want to find out more about keyword #1, then visit Tim Esler’s site on how to choose the best keyword #2 for your needs.
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