In consideration of changes occurring in the insurance industry regarding contractual terms and conditions for your Property and Casualty coverages, we have developed an FAQ to explain how our model policies with Travelers and The Hartford address requirements that are commonly-requested for certificates of insurance. This worksheet of Frequently Asked Questions for General Liability insurance is designed to communicate what is provided by our model policies issued through Travelers and The Hartford insurance companies. Requirements for other carriers will differ; please consult your insurance broker for more information.
Q: What is a Certificate of Insurance?
A: Certificates of insurance are issued merely as evidence of your insurance policy. Certificates are not issued automatically when a policy is purchased or renewed. They are issued by your insurance agency at your request. The need for a certificate typically is generated by a client or project owner, who wants documentation that certain insurance requirements are being met by consultants who are working for them or on their behalf. The certificate illustrates the coverage types, limit and deductible amounts, and effective and retroactive dates of pertinent insurance policies. It is issued for informational purposes only and assigns no rights to the certificate holder. The certificate does not amend, extend or alter coverage and does not constitute a contract.
Q: Can the General Liability Policy be amended to meet specific contract requirements?
A: Our model policies are specifically designed for A/E professionals and as such, automatically include the most common amendments required by contract. Built directly into the policy language, the amendments are provided on a "blanket basis" and are engaged when required by written contract.
*Additional Insured This is an agreement to name a third party as an insured under your insurance contract. With this endorsement, the insurance company agrees to provide coverage for defense and indemnity if a claim is made against that third party with respect to premises you rent, or work that you do on their behalf, among other types of contractual relationships. The blanket additional insured wording on our model policies provides additional insured status automatically when required by written contract. Some certificate holders will request to be "specifically" named as an additional insured. This serves the same purpose but specifically lists the additional insured's name on the endorsement. There is a modest charge for this endorsement to be added to our model policies.
* Primary and Non-contributory Additional Insured status When a person or organization is added as an additional insured to the General Liability Policy of another, that person/organization then has two potential General Liability policies in place. The Primary and Non-Contributory wording clarifies the order in which each of these two policies will respond in the event of a claim. When you have contractually agreed to grant Primary and Non-Contributory status to an additional insured; they will have primary coverage under your policy and your insurance company agrees that the other policy will not be expected to contribute until the "primary" policy limits have been exhausted.
* Waiver of Subrogation When this is included as part of the policy, the waiver of subrogation clause provides further clarification that the General Liability insurance company will waive their right to subrogate a claim. This means the insurance company will not attempt to get reimbursement from another responsible party, such as the additional insured, for defense and indemnity expenses that it has paid. Waiver of Subrogation only responds when it has been contractually agreed upon prior to a loss.
Q: What are the provisions of the Cancellation Clause?
A: The ACORD25S 2009/09 which is the most recent version of the Certificate of Insurance states the following "Should any of the above-described policies be cancelled before the expiration date thereof, notice will be delivered in accordance with the policy provisions." That noted, each state has its own specific regulatory provisions regarding the reasons a policy can be cancelled, and what length of notice is required. Most commonly, the length of notice is 10 days for non-payment of premium. Any other reason, such as material change in operations of an insured, or non-compliance with insurance company requests/requirements, usually requires longer notice periods. Carriers generally WILL NOT broaden the regulatory notice provisions. Any exceptions must be specifically approved by underwriters and the policy endorsed accordingly. Altering any wording on the Certificate will not alter the insurance company's obligation under the policy. Furthermore, the "will endeavor" to mail notice of cancellation to certificate holders has been eliminated as it is not specifically supported by policy wording.
Q: Does my policy have a Cross Liability Exclusion or Separation of Insureds Language?
A: There is no cross-liability exclusion in our model policies that would prevent an insured versus insured claims scenario. To the contrary, our model policies include a Separation of Insureds provision that states each insured under the policy (named insured's and additional insured's) will be treated separately and individually. This is commonly referred to as Severability of Interest. Essentially, with separation language in place and cross-liability absent, the policy is applied to every insured in the same manner as if separate policies had been issued except with respect to limits.
Q: Does my policy have an X, C, U exclusion?
A: These exclusions, which stand for Explosion, Collapse, and Underground are NOT standard exclusions in the current General Liability contract. As such, the standard contract for our model policies does provide X,C,U coverage.
Q: Does the Additional Insured Endorsement include Completed Operations?
A: Our model policies include completed operations. This means that completed operations coverage is in place AFTER completion of the work, but only for claims that occur during the covered policy period.
Q: Are there amendments to Workers Compensation Coverage?
A: Additional insured and Waiver of Subrogation, as described below, are the most commonly-requested amendments for Workers Compensation policies.
* Additional Insured - these are not approved with our existing carriers, because this would indicate that you are agreeing to cover other entities employees on your workers compensation policy.
* Waiver of Subrogation - these can be honored on either a blanket basis or a specific basis. There are additional premium fees associated with this and the coverage must be approved by the insurance company. (Waivers are not permitted in all states).
Q: Are there amendments to Auto Coverage?
A: Additional Insured Status and Waivers of Subrogation are generally included on a blanket basis via an auto enhancement endorsement which is standard for our model policies.
This worksheet is intended for general information purposes only and is not an analysis of any individual policy. It is important to review your insurance policy thoroughly to ensure that the coverage meets your business needs and contract requirements. Please ask us to check your policy if you are unsure of particular coverage.
Hall & Company, 19660 10th Avenue NE, Poulsbo, WA 98370, 360.598.3700 fax 360.598.3703 http://www.hallandcompany.com
Hall & Company
Professional Liability Insurance
Monday, December 20, 2010
Sunday, January 31, 2010
A Behind the Scenes Look
Placing Professional Liability Insurance for Architects, Engineers and Environmental Consultants is our sole focus. As insurance brokers, we know that getting the best terms for our clients requires that we negotiate with underwriters the premium for each client. To do this effectively it is critical to understand how insurance underwriters view risk and the factors they use in setting premiums. The article below was written by Lee Genecki, one of our senior brokers. Lee was formerly the lead underwriter for the Travelers A/E professional liability insurance program. As the lead underwriter it was Lee’s responsibility to set rates and establish the risk assessment criteria for quoting premiums. This article describes risk factors underwriters assess and provides insight to design firms on how to complete an insurance application to present a firm in its best light. It also describes the role we play as a broker to negotiate competitive terms.
Michael Hall, President Hall & Company
A Behind the Scenes Look
How Your Professional Liability Premium is Determined
To those outside of the insurance industry it may appear that professional liability premiums are determined somewhat randomly by people with limited knowledge of the design profession. As a former underwriter turned broker, I am here to tell you that this misconception couldn’t be further from the truth. Your professional liability premiums are established through a process involving the assessment of several factors over which you have some power to influence.
Looking through the eyes of an underwriter, design professionals can gain an edge in obtaining the best possible insurance premiums with the use of a thoughtful application submission. The article below describes the factors underwriters use in developing quotes for professional liability insurance.
What your application tells underwriters
When an underwriter receives your application their immediate task is to evaluate your firm’s potential loss exposure. The two basic types of loss exposure are frequency and severity. Underwriters use the information on your application to calculate the probability of your firm experiencing claims over the life of the policy and furthermore, if you have a claim, how much it will potentially cost.
However, before even considering the merits of an individual firm, insurance carriers already have defined what type of firm is a “good risk” for their company based on previous experience. They try to attract as many such firms as they can with various coverage differences and program enhancements but the primary lure is price. Their objective is to set a price that attracts good risks but still allows for an underwriting profit. This is complicated by the catastrophic nature of professional liability claims in the A/E industry. Losses tend to be quite large with a recent statistic stating that the average indemnity payment for a paid loss is upwards of $350,000. As a result, the many end up paying for the few.
Design firms need to make their business look attractive to the insurance company in order to obtain the best possible terms. The first step in this strategy is to identify the different risk factors and then present your firm in the most positive way. While numerous factors determine the risk that your firm poses to an insurance company, for the purpose of this discussion we will focus on the most critical areas.
Area of Practice
There is not much that you can do to influence an underwriter in this category. You are what you are. But it may be helpful to understand how the insurance company evaluates each discipline when it comes to their exposure to risk. The most common discipline in most insurance companies’ books of business is Architects. As a result, insurance carriers tend to use their rates for architects as base from which to determine rates for other types of firms.
There are two disciplines that tend to pay a higher rate for their insurance than Architects: Structural Engineers and Geotechnical Engineers. Keeping in mind that underwriters are always thinking about exposure to loss, the question they asks themselves is “ what happens if there is an error in a structural calculation or a geotechnical report?” In many cases the project is stopped or even scrapped with a worst case scenario being a collapse. Because of this, Geotechnical Engineers take the unenviable position of paying the highest average rate in the industry with some carriers charging as much as two times what Architects will pay. Structural Engineers pay a much higher rate as well but they tend to be roughly 1.5 times more than Architects.
The professional discipline seen as having the lowest exposure to loss and thus paying the lowest rate is Electrical Engineers. Going back to the basic underwriting question, if an Electrical Engineer makes an error, the damage and corresponding fix is usually far less than a foundation issue or an insufficient support beam. There are always exceptions but the claims statistics strongly support this evaluation. Positioned somewhere between Electrical Engineers and Architects sits Mechanical Engineers, Surveyors, and Civil Engineers with Civil Engineers having a rate that most closely resembles that of Architects.
Location of Projects
The location of your practice or more specifically, the location of your projects, does have bearing on the rate that is determined for your firm. Claims statistics show that the probability of a loss on a building in Miami, Florida is much different than a building in Flagstaff, Arizona. There are many theories as to why this is the case, but the statistics clearly show that a higher rate is needed in most major metropolitan areas as opposed to most rural areas. Again, there are exceptions to every rule, but the statistics on this topic are definitive.
Type of Projects
Rate factors in the area of project types, more so than any other, presents the greatest amount of differentiation amongst the various insurance carriers based on their individual statistics and beliefs. Understanding the “sweet spots” of the different carriers and matching your firm’s characteristics with the best markets is the job of your insurance advisor, your broker. As a design professional, you cannot possibly know all of the different markets and specifically which markets best suit your firm.
In general, project types that are seen as the least “risky” in the eyes of the insurance company are those which tend to have less individuality in the design and have less emotional attachment than other project types. This includes projects such as office buildings, banks, retail, and most commercial projects.
Project types that tend to be more of a challenge from a risk perspective are those which are more unique to their individual locations and have a much greater bodily injury exposure than the others. They can also run quite large in scale which increases the physical damage exposure exponentially. These include schools, jails, industrial plants, bridges, parking garages, and stadiums.
Finally, the projects that are considered to be high risk are residential projects, swimming pools, harbors and docks, mines, and amusement parks and zoos. The project type with the highest perceived risk is condominiums. The industry has determined that for every premium dollar received by the carrier for a condominium project, 3.5 dollars goes out. All of these projects either carry a high emotional factor from the end user or have a high inherent catastrophic loss exposure such as a mine or amusement park. It is not the intent of this article to discourage any design firm from performing services on high risk projects but it is prudent to understand the exposures and manage the risk as well as possible.
Internal Risk Management
Your firm’s internal risk management practices provide the best opportunity for you to differentiate your firm and illustrate to the underwriter why you are worthy of their absolute best rate, the rate that is given to the “best in class” type firm. Throughout the application are questions that on the surface seem benign and unimportant but they are there to paint a picture of the firm for the underwriter that goes beyond the discipline and project types.
These questions include, but are not limited to, use of written contracts, limitation of liability provisions, insured sub consultants, types of contracts, in-house education programs, attendance at risk management seminars, and professional society memberships. Individually and collectively these categories allow for the underwriter to apply debits and/or credits based on the responses given. In some cases the difference can be as much as 25%.
The unfortunate reality is that far too few firms are properly advised by their insurance representative as to the effect of these questions and thus do not enjoy the premium reductions associated with them. Again, it pays to be with an expert that knows your business and the ever changing marketplace.
Loss History
The area of risk that is perhaps most quantifiable is loss history. As was mentioned earlier, when a design firm does have a legitimate claim, they tend to be quite expensive. There also is a belief in the underwriting world that past claims are a pretty fair indicator of potential future claims activity. As a result, a firm with claims in their past generally pays a much higher rate than a similar firm with no claims. The industry standard is to look five years into a firm’s past for claims activity but it is not uncommon for a carrier to look ten years back when evaluating a larger firm.
The key for any design firm with a claim is to take the time to effectively articulate the circumstances regarding the claim and the lessons learned. In some cases, given the right approach and documentation, a firm along with its broker, can convince the carrier that it is an even better risk than a firm with no claims because of the experience and knowledge gained from the unfortunate situation.
Setting the price
Underwriters’ thorough review of these and other factors gives them a profile from which to develop a specific rate for your insurance. The rate is applied against your professional fees and a premium is determined. The premium is increased as the limits of liability desired increases. Conversely, the premium is decreased as the deductible that is carried increases.
Summary
Looking through the eyes of an underwriter, design professionals can gain an edge in obtaining the best possible insurance premiums with the use of a thoughtful application submission. However, an application does not speak for itself. As your professional liability insurance broker, we work with you to understand your practice and gather mitigating information on the areas that underwriters perceive as risky. Then, we negotiate with underwriters to favorably characterize your firm and prove the mitigating information to encourage the most competitive premium quotes. Integral to this task is our specialized knowledgeable and complete focus on the A/E industry.
We hope this information has been helpful for you to better understand the process for quoting professional liability insurance for design firms. Our staff is available to consult with you about your firm’s specific insurance needs at 1-800-597-2612. Visit our website at www.hallandcompany.com for more resources and information about our capabilities.
Michael Hall, President Hall & Company
A Behind the Scenes Look
How Your Professional Liability Premium is Determined
To those outside of the insurance industry it may appear that professional liability premiums are determined somewhat randomly by people with limited knowledge of the design profession. As a former underwriter turned broker, I am here to tell you that this misconception couldn’t be further from the truth. Your professional liability premiums are established through a process involving the assessment of several factors over which you have some power to influence.
Looking through the eyes of an underwriter, design professionals can gain an edge in obtaining the best possible insurance premiums with the use of a thoughtful application submission. The article below describes the factors underwriters use in developing quotes for professional liability insurance.
What your application tells underwriters
When an underwriter receives your application their immediate task is to evaluate your firm’s potential loss exposure. The two basic types of loss exposure are frequency and severity. Underwriters use the information on your application to calculate the probability of your firm experiencing claims over the life of the policy and furthermore, if you have a claim, how much it will potentially cost.
However, before even considering the merits of an individual firm, insurance carriers already have defined what type of firm is a “good risk” for their company based on previous experience. They try to attract as many such firms as they can with various coverage differences and program enhancements but the primary lure is price. Their objective is to set a price that attracts good risks but still allows for an underwriting profit. This is complicated by the catastrophic nature of professional liability claims in the A/E industry. Losses tend to be quite large with a recent statistic stating that the average indemnity payment for a paid loss is upwards of $350,000. As a result, the many end up paying for the few.
Design firms need to make their business look attractive to the insurance company in order to obtain the best possible terms. The first step in this strategy is to identify the different risk factors and then present your firm in the most positive way. While numerous factors determine the risk that your firm poses to an insurance company, for the purpose of this discussion we will focus on the most critical areas.
Area of Practice
There is not much that you can do to influence an underwriter in this category. You are what you are. But it may be helpful to understand how the insurance company evaluates each discipline when it comes to their exposure to risk. The most common discipline in most insurance companies’ books of business is Architects. As a result, insurance carriers tend to use their rates for architects as base from which to determine rates for other types of firms.
There are two disciplines that tend to pay a higher rate for their insurance than Architects: Structural Engineers and Geotechnical Engineers. Keeping in mind that underwriters are always thinking about exposure to loss, the question they asks themselves is “ what happens if there is an error in a structural calculation or a geotechnical report?” In many cases the project is stopped or even scrapped with a worst case scenario being a collapse. Because of this, Geotechnical Engineers take the unenviable position of paying the highest average rate in the industry with some carriers charging as much as two times what Architects will pay. Structural Engineers pay a much higher rate as well but they tend to be roughly 1.5 times more than Architects.
The professional discipline seen as having the lowest exposure to loss and thus paying the lowest rate is Electrical Engineers. Going back to the basic underwriting question, if an Electrical Engineer makes an error, the damage and corresponding fix is usually far less than a foundation issue or an insufficient support beam. There are always exceptions but the claims statistics strongly support this evaluation. Positioned somewhere between Electrical Engineers and Architects sits Mechanical Engineers, Surveyors, and Civil Engineers with Civil Engineers having a rate that most closely resembles that of Architects.
Location of Projects
The location of your practice or more specifically, the location of your projects, does have bearing on the rate that is determined for your firm. Claims statistics show that the probability of a loss on a building in Miami, Florida is much different than a building in Flagstaff, Arizona. There are many theories as to why this is the case, but the statistics clearly show that a higher rate is needed in most major metropolitan areas as opposed to most rural areas. Again, there are exceptions to every rule, but the statistics on this topic are definitive.
Type of Projects
Rate factors in the area of project types, more so than any other, presents the greatest amount of differentiation amongst the various insurance carriers based on their individual statistics and beliefs. Understanding the “sweet spots” of the different carriers and matching your firm’s characteristics with the best markets is the job of your insurance advisor, your broker. As a design professional, you cannot possibly know all of the different markets and specifically which markets best suit your firm.
In general, project types that are seen as the least “risky” in the eyes of the insurance company are those which tend to have less individuality in the design and have less emotional attachment than other project types. This includes projects such as office buildings, banks, retail, and most commercial projects.
Project types that tend to be more of a challenge from a risk perspective are those which are more unique to their individual locations and have a much greater bodily injury exposure than the others. They can also run quite large in scale which increases the physical damage exposure exponentially. These include schools, jails, industrial plants, bridges, parking garages, and stadiums.
Finally, the projects that are considered to be high risk are residential projects, swimming pools, harbors and docks, mines, and amusement parks and zoos. The project type with the highest perceived risk is condominiums. The industry has determined that for every premium dollar received by the carrier for a condominium project, 3.5 dollars goes out. All of these projects either carry a high emotional factor from the end user or have a high inherent catastrophic loss exposure such as a mine or amusement park. It is not the intent of this article to discourage any design firm from performing services on high risk projects but it is prudent to understand the exposures and manage the risk as well as possible.
Internal Risk Management
Your firm’s internal risk management practices provide the best opportunity for you to differentiate your firm and illustrate to the underwriter why you are worthy of their absolute best rate, the rate that is given to the “best in class” type firm. Throughout the application are questions that on the surface seem benign and unimportant but they are there to paint a picture of the firm for the underwriter that goes beyond the discipline and project types.
These questions include, but are not limited to, use of written contracts, limitation of liability provisions, insured sub consultants, types of contracts, in-house education programs, attendance at risk management seminars, and professional society memberships. Individually and collectively these categories allow for the underwriter to apply debits and/or credits based on the responses given. In some cases the difference can be as much as 25%.
The unfortunate reality is that far too few firms are properly advised by their insurance representative as to the effect of these questions and thus do not enjoy the premium reductions associated with them. Again, it pays to be with an expert that knows your business and the ever changing marketplace.
Loss History
The area of risk that is perhaps most quantifiable is loss history. As was mentioned earlier, when a design firm does have a legitimate claim, they tend to be quite expensive. There also is a belief in the underwriting world that past claims are a pretty fair indicator of potential future claims activity. As a result, a firm with claims in their past generally pays a much higher rate than a similar firm with no claims. The industry standard is to look five years into a firm’s past for claims activity but it is not uncommon for a carrier to look ten years back when evaluating a larger firm.
The key for any design firm with a claim is to take the time to effectively articulate the circumstances regarding the claim and the lessons learned. In some cases, given the right approach and documentation, a firm along with its broker, can convince the carrier that it is an even better risk than a firm with no claims because of the experience and knowledge gained from the unfortunate situation.
Setting the price
Underwriters’ thorough review of these and other factors gives them a profile from which to develop a specific rate for your insurance. The rate is applied against your professional fees and a premium is determined. The premium is increased as the limits of liability desired increases. Conversely, the premium is decreased as the deductible that is carried increases.
Summary
Looking through the eyes of an underwriter, design professionals can gain an edge in obtaining the best possible insurance premiums with the use of a thoughtful application submission. However, an application does not speak for itself. As your professional liability insurance broker, we work with you to understand your practice and gather mitigating information on the areas that underwriters perceive as risky. Then, we negotiate with underwriters to favorably characterize your firm and prove the mitigating information to encourage the most competitive premium quotes. Integral to this task is our specialized knowledgeable and complete focus on the A/E industry.
We hope this information has been helpful for you to better understand the process for quoting professional liability insurance for design firms. Our staff is available to consult with you about your firm’s specific insurance needs at 1-800-597-2612. Visit our website at www.hallandcompany.com for more resources and information about our capabilities.
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