How can engineers get more competitive professional indemnity insurance - and what happens when they have to make a claim? Matthew Reed explains.
A business lifeline or a necessary evil: whatever engineers think of insurance, more and more within the engineering community are making claims on their professional indemnity (PI) policies.
In an increasingly litigious society, customers are more aware of their ability to seek redress through the courts for alleged professional negligence, or to use this new tactic as a ploy to delay payment.
Most engineers will have seen their PI premiums spiral over the past couple of years, to the extent that it probably comes a close second to spending on information technology in many firms' profit and loss accounts.
Spiralling PI costs have crippled smaller firms in recent years as the insurance market reacted to the 9/11 terrorist attacks.The cost of insurance now is higher than ever, the level of cover has fallen and the number of insurers dealing with construction has fallen.
Many smaller firms have become exposed to greater risks, accepting inadequate wording and restrictive exclusions just to be able to afford any sort of PI cover.
The bad news is that, while the insurance market is starting to flatten out, many insurers are likely to continue to view the civil engineering profession as high risk. The good news is that firms can engineer a more competitive premium and comprehensive cover by following a few golden rules.
Choose the right broker to source the cover lDoes the broker specialise in construction PI?
If not, find one that does.Trade associations can be a good place to start, but engineers should be aware that some are tied to a specific insurance partner.
l Will the broker meet firms face-to-face and take them through the process? The firm is paying for this service.
l Make sure the broker places the company's business direct with the insurer, not through another broker.Insurance is a relationship-based business, and the better the broker knows the insurers, the more likely it is to secure a better premium.
l Can the broker provide risk management advice? The broker is the expert in insurance and should be able to give sound pointers as to what insurers will consider positive or negative risk management.
l Will the broker ensure the business is considered as an individual entity, or will the firm be lumped into a group scheme? Is the company really prepared to pay for someone else's poor claims record?
Make sure the broker helps through each stage of the renewal submission lThe broker is the expert so do not accept anything less than a face-to-face service.
lGive as much information as possible to the broker so it can present the business in the most positive and accurate manner to the insurer.If the broker does not press for information, is it doing the best job?
l If the company has made notifications of claims in the past, ensure the broker is kept up to date so that it, in turn, can keep the insurer fully informed.
l Undertake a regular survey of what is happening in the insurance market - continuity of insurer is important, but at what cost? Again, the right broker should offer this as part of the service.
Put in place a solid risk management strategy Developing risk management systems can greatly reduce the likelihood of needing to use insurance. Firms can reduce their reliance on insurance and use it more as a safety net - this will generate substantial savings.
l Appoint a senior member of the business to develop, implement and oversee the company's risk management strategy - and ensure it is a regular item for review at board level.
l Ask the broker to lead regular risk management seminars for engineering teams and use it to vet any contracts the firm enters into.PI insurance provides cover in respect of legal liability and it is vital to manage liability incurred in contracts and internal working procedures.
l The more the insurer is assured the business has done everything possible to negate the likelihood of a claim, the more likely it is that it will provide a competitive quote.
Matthew Reed is business development director, UK PI, at Howden Insurance Brokers.
Howden will be exhibiting at Civils 2004 and will answer engineers' questions about PI insurance.
Insurance claims - top tips Managing a claim, or a potential claim, can be a nerve-wracking process.
The broker is key to the process - it works for the firm and not for the insurer - and should fight tooth and nail to ensure the best possible outcome.
Notify the broker immediately, even if the potential claim is considered to be groundless.
The sooner the broker is aware of and understands the situation, the sooner it can start working to present the claim to your insurer; the longer it is left, the bigger the problem will become.
Know what the policy covers.
Consult the broker - it put the policy together in the first place.
Start collating all the relevant information to prepare a notification for the insurer. The broker should help, but some basics include:
lthe date when the company first became aware of the situation ldetails of the claimant la description of the allegation or possible claim and a summary of events to date lcopies of any relevant documentation and correspondence lan indication of the potential amount involved Stay in constant contact with the broker. The broker should be fighting the company's corner with the insurer, so ensure it has access to all the necessary information and people - and that it keeps the company informed of progress.
What not to do:
lDo not admit liability lDo not make any offers of settlement without consulting the broker and getting the insurer's consent lDo not take any other action that may prejudice the insurer's position lDo not incur without authorisation any legal expenses the company wishes to recover from its insurer lDo not tell claimants the company's insurer is being notified. This could well lead to an immediate case of 'deep pocket syndrome'.