Not having insurance
Emerging firms sometimes go without insurance because either it appears there is little risk or because their assets are limited and they don’t have a lot to lose. It can seem too expensive for the potential benefit, but it’s critical to know that it can cover legal costs in the event of a claim. A young firm can go bankrupt just trying to get an unfair claim dismissed in court.
Getting insurance
Professional liability insurance is most commonly purchased through an independent broker, representing the interests of the architect, not those of the insurance company. There are also insurance companies represented by agents only affiliated with that company exclusively. Whether architects use a broker or an exclusive agent, care should be taken in selecting a policy - as they contain various options. Independent insurance consultants that don’t sell policies can also provide guidance.
In selecting a policy, price is of course a consideration. Understand how much of the premium is going to the broker if applicable. Beyond price, a number of other factors should be considered.
■What exactly is covered? And what is excluded?
■How broad is the company’s history in working with architects?
■How flexible is the company in working with a changing firm?
■Do they offer project insurance? Design-build insurance?
■Do they cover prior work you’ve done?
■Is the company rated strong? AM Best provides ratings of insurance companies based on financial strength and follow through on obligations. Standard & Poors rates a company’s ability to pay claims. Moody’s rates the company’s financial strength.
■Is the insurer state licensed or admitted and therefore covered by a guaranteed fund if the company becomes insolvent?
Premiums
Insurance works because a large number of premiums are pooled together to offset individual losses. A number of factors affect the premium a firm must pay.
■Volume – if you do a lot of work, you’re more likely to be exposed to a claim.
■Type of Service – if the insurance company knows exactly what you’re billing for, premiums can better mirror claims data. Clearly separated billing information will help the insurer.
■Type of Project – low-risk projects have lower premiums. Projects such as condos however face high premiums due to the number of clients and potential claims involved.
■Your history – if you’re claims free, your insurance premium is lower.
■Location – certain states are higher risk. This is defined by claims data.
■Longevity – if you stick with an insurer, they develop trust in you and may provide lower premiums.
■Competition – insurance is a highly competitive market with companies coming and going frequently. However, be careful of premiums that seem too good to be true.
Frequent Change
Law practice surrounding professional liabilities is changing frequently. Architects can work with attorneys and risk managers for up to date advice. Insurance can be simple, but policies are affected by the complexity and change of financial markets.
Changing Project Delivery Methods
Be aware of how an insurer is addressing changing project delivery methods such as design-build and integrated project delivery.
Claims
There are two ways a firm may need to alert its insurance company about a potential claim. One, the architect receives a clear written demand for money or an allegation of negligence. The other might simply be a concerning circumstance in the project that could be a potential problem down the road. Policy terms include the timeframe for notifying the insurer of potential claims.
Other Insurances
Commercial General Liability Insurance covers slips, falls, slander, property damage to a 3rd party and other issues faced by a business.
Employment Practices Liability Insurance protects and employer against claims such as harassment, discrimination and wrongful termination.
Other policies can cover the architect’s office, it’s contents, valuable papers and media and business interruptions. Blanket policies can also cover the loss of money due to crime.
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