Engineering Inc. - January/February 2010 - 24

W hile business for many firms is shrinking, liabilities for work completed over the past five years are on the rise. MiChael davis zuriCh north ameriCa eventually does regain its footing, firms can increase their limits or reduce their deductibles, which in most cases would apply retroactively. States such as Florida, California, Arizona and Nevada have experienced problems similar to Michigan. Daniel Delarosa, president of the Professional Liability Agents Network and a principal and vice president at Suncoast Insurance Associates, calls conditions in Florida “the worst I’ve seen in my business career.” With private-sector work in Florida “pretty much at a standstill” and with more than 200 previously insured firms already out of business, Delarosa says those that remain are beginning to question whether they can ride out the slump. With commercial property vacancies up around 20 percent to 30 percent and unemployment above 11 percent, there also is widespread concern that Florida’s commercial bubble is about to burst. Though select firms have found work retrofitting empty commercial space for new tenants, Delarosa urges local A/E firms to “look northward for work” for the next couple of years. Coverage Adjustments reporting period,” tail insurance provides an additional one to three years to report claims in the event that a firm is bought or goes out of business. The situation has gotten so bad in parts of the country that some insurance carriers report firms unable to cover claim deductibles. James Bechter, chief operating officer of RA&MCO Insurance Services, says it’s not uncommon for today’s underwriters to request financial statements to verify a firm is capable of paying its deductible. In certain cases where firms cannot cover the cost of their deductibles, carriers might agree to cover the cost in exchange for promissory notes that require firms to pay the money back. Given the recent financial crisis, he says, it’s not unusual for carriers to “try to work with the insured.” Claims on the Rise many firms is shrinking, liabilities for work completed over the past five years are on the rise.” Davis says a plummeting real estate market has contributed to the increase, while some real estate owners say that construction delays have prohibited them from realizing profits on property deals. Qualifications-Based Selection Every insurance carrier that responded to this year’s survey reported stable or slightly higher claims compared with the previous year. As in previous years, residential and public K–12 school projects experienced the most claims. One carrier reported that only one in five claims had any merit and one in six ended in a payment. Michael Davis, professional liability product manager for Zurich North America, says that “while business for With claims ticking upward and opportunities for liability on the rise, it’s more important than ever that firms choose the right carrier and level of coverage for their particular situation. It’s a decision that requires more than simple price shopping. Among the most popular criteria for choosing an insurance provider is Qualifications-Based Selection. Carriers vary widely in their experience in the marketplace, underwriting expertise, policy coverage, pre-claims assistance, claims management strategy and risk management program support. Some carriers publicly disclose features of policy coverage; others claim that disclosing coverage leads to more restrictive policies. Whether a firm lists its coverage outright or holds its parameters close to the vest, Corbett says, firms should know what they’re paying for. If a price seems low, ask why. The last thing a firm wants is to assume coverage based on its policy only to have its claim denied. Particular Exposures That might lead to higher Rate Increases Than in Recent Years 6.5% Public School Projects � � 6.5% Economic Uncertainty � 40% No New Exposures As the economic fallout continues to wreak havoc on corporate balance sheets, insurance carriers say an increasing number of firms are inquiring about “tail insurance.” Also known as an “extendedENGINEERING INC. JANUARY / FEBRUARY 2010 � 47% Residential Homes and Condominiums Source: 2009 Professional Liability Insurance Survey of Carriers

Engineering Inc. - January/February 2010

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