Physicians are not the only group that has faced sharply escalating costs for professional liability insurance in recent years. Architects and engineers have watched the price for “malpractice” insurance mushroom over the course of the last decade, some rising by as much as five-fold in a mere three years.
The bad news, more rate hikes are possibly in the offing for 2006. The good news is that those hikes should be moderate compared to the last few years, and some firms may even see rates remain constant this year.
Near the close of 2005, the American Institute of Architects (AIA), American Council of Engineering Companies and the National Society of Professional Engineers released their annual “Professional Liability Insurance Survey,” which polled 11 insurance companies. The survey found that in contrast to significant rate increases of the early part of this decade, most insurance companies interviewed expect rates to remain largely stable in 2006, and several insurers reported that they have excess capacity and are aggressively looking to write new policies.
In conclusion, the report stated that rate increases in recent years coupled with the increase in the number of insurance companies offering professional liability insurance coverage to design professionals “seems to have created a competitive and aggressive market.”
Controlling insurance costs
Indeed, it would seem design professionals are seeing the beginnings of a soft professional liability insurance market and a break from skyrocketing costs. Mississippi’s architects and engineers can expect a “buyer’s market” for insurance in the near future.
Sam Bryson, president of Jackson-based Bryson & Company, a full-service insurance agency that traces its roots back to the 1950s, said carriers indeed have excess capacity, and many are aggressively marketing to architects and engineers.
Obviously, firms are going to benefit from market forces that are outside firms’ control. The supply-and-demand cycle has finally turned in architects and engineers’ favor.
However, just as with health insurance, there are proactive efforts firms can take to help control insurance rates and are not simply at the mercy of market forces. In fact, Bryson blocks out time each year to educate architects, engineers and other clients on the ins and outs of professional liability insurance, and how to control costs and losses. (Not only do Bryson’s clients value his services, so do other insurers. Two separate insurance executives with competing agencies recommended Bryson as the expert in Mississippi to talk to about liability insurance for design professionals.)
Annually, Bryson visits his clients, offering education on professional liability coverage – what to expect, how it works and how to curb costs, as well as issues facing contractors and the construction industry as a whole and more. New clients are offered the basics, such as typical pitfalls that can lead to costly litigation and delays in receiving payment and ways to avoid filing claims. With established clients, Bryson offers more specific and advanced information, all designed to give clients the power to help them control insurance costs internally. He also offers timely advice, such as the ramifications of Hurricane Katrina.
“These more specific topics include contracts, which is a big issue, issues within the construction industry and improving communication between design professionals and owners, as well as contractors,” he said.
For instance, Bryson advises architects and engineers to stay clear of contracts that place excessive liability upon the design professionals. It sounds simple — Bryson advises that design professionals enter into contracts only if those contracts adequately represent the firm’s services. Many future, potentially costly, problems can be avoided down the line by simply paying close attention to the details of the contract. Taking a magnifying glass to the fine print is an absolute must.
Bryson strongly touts another “pre-problem” strategy — talking with owners and contractors. He stresses communication as an essential key to controlling insurance costs.
“Friends don’t sue friends,” Bryson said with a laugh. “If design professionals establish good, close working relationships with contractors and owners, they can save themselves money in our litigious society. Understanding contractors’ and owners’ expectations is vital.”
Finally, Bryson focuses strongly on quality control. Design professionals executing outstanding work are obviously less likely to face problems where insurance is a must.
“If design professionals are having to make a goodwill payment due to a problem of, say, $5,000, that comes out of firms’ bottom line,” he said. “A few of those types of incidents and, well, it can add up pretty quickly. That’s where watching contracts, good communication and quality workmanship comes in.”
Bryson feels that rates for professional liability insurance should be flat in 2006. He, too, believes a soft market is in the works, and companies that are taking more proactive steps to curb insurance and other costs are going to benefit the most.
“I think you’re going to see carriers take a harder look at cost control and loss history,” Bryson said. “Those that have cost-control systems in place are going to be rewarded for that.”
Contact MBJ staff writer Wally Northway at email@example.com.