-Partners in Practice -
INSURANCE MARKET UPDATE	JANUARY 1996

One of the major professional liability insurers recently announced yet another premium credit. This time, the credit will be granted for attendance at the ACEC Senior Executive's Institute. Everyone wins. ACEC gets support for a major professional development initiative, the company gets widespread publicity, and you receive the benefit of subsidized, advanced management education. Well now.

Perhaps it's time to take a careful look at the issues raised by this particular company's ever-expanding premium credit program. The credits are granted for good behavior, which is defined as something the company would like to have you do. Here is a partial list: 1) Limit your liability (take a credit of up to 25%); 2) participate in testing programs for principals and staff (earn a "continuing" credit of 10%); 3) have a principal complete the course of study at the Senior Executive's Institute (reward yourself with an additional 10%). Assuming you could qualify for all of these benefits in a single year (and you can), you would receive a discount on your professional liability insurance premium of a whopping 45%!

How can that be? A discount of 45% can be a lot of money. But, 45% off what? It is not as if there were an objectively determined base premium out there. The marketplace sets your premium, and many who have turned to brokers independent of ties to this particular company to test its renewal terms have discovered that the market was somewhere south of their extensively credited renewal quotations. The result? Immediately revised and significantly more competitive terms. But were they 20% to 45% below the market? None that we have seen. So much for the value of premium credits for prescribed behavior.

If professional liability insurance premiums are truly market driven, and they are, what, in the service of accurate use of the English language should we call premium credits that do not show up as true savings? Pretend credits? Something to talk about credits? You do not have to wait for an insurance company to come up with a gee whiz list of things it would have you do in order to earn premium credits in today's marketplace. You can do whatever you believe to be most appropriate to strengthen the management of your practice and still qualify. We can help.

The marketplace is awash with loss prevention materials and services from which to choose, and brokers who specialize in professional liability insurance for architects and engineers are pleased to have the opportunity to bring all the risk management resources and expertise at their disposal to bear on behalf of their clients. If your firm is better managed as a result, and it should be, and if your broker is in a position to offer you the maximum benefits of the competitive marketplace, that marketplace will reward you handsomely.

The fact is, any insurer in the market today can promise you a 45% credit for anything you like. How can this be? Take a close look: If the market dictates a renewal premium of $5,500, it is no trick to start at $10,000, generously apply a credit of 45% (call it anything you wish), and there you have it--a $5,500 premium. All you need is the help of an independent broker to secure this result. For an insurer to promulgate the fiction that this same 45% is your reward for leaping through the premium credit hoops it sets up along the way is...patronizing at best.

So, are these loss prevention credits real? Not in this market; probably not in any market. If they were, first you would be offered a competitive renewal quotation. Then, after you had done all the good things your insurance company asked you to do, you would receive a check in the mail for the full amount of the credit you earned. Your net premium would then be 20% to 45% below market, and you could use these true savings to pay the tuition at the Senior Executive's Institute--if that is what you chose to do with your own money.

The fact that it does not work this way raises a number of interesting questions. "Who is in control here, and to what end?" are among the first that come to mind. "Whose liability is really being limited, and at whose ultimate cost?" follow closely at hand. For a profession beleaguered by external competition--armed with the claim that architects and engineers have abandoned the field by seeking to limit their liability in the face of ordinary risk--perhaps this last question is the most important of all.

Contrast this approach with that of another major insurer whose promise to you is written into its policy of insurance and into an agreement with the professions: "If we can work together to reduce your risk in reasonable ways, in ways that you choose, and if our profits exceed a level we have agreed in advance to be appropriate, we will return the difference." This company has mailed checks in substantial amounts to its architectural and engineering clients every year for the past seven years.

You can grab the horns, if you choose to do so, and we can help you do that. But, whatever your choice, don't be mesmerized by a finely adorned tail.

	Professional Practice Insurance Brokers, Inc.
10 California Street Redwood City, CA 94063 (415) 369-5900	4401 Colwick Road Suite 700 Charlotte, NC 28211 (704) 365-0900	540 Frontage Road Suite 3030 Northfield, IL 60093 (847) 441-0210	2244 West Coast Highway, Suite 200 Newport Beach, CA 92663-4724 (714) 729-0700
© 1996, Professional Practice Insurance Brokers, Inc. This newsletter is published as a professional liability loss prevention service to PPIB clients and friends. It is intended for use by architects and engineers as an information resource. It is not intended to afford legal or insurance advice or opinion. Readers are urged to consult competent legal and insurance counsel for assistance in applying the information presented here to their own unique circumstances.

For inquiries or problems please contact us via e-mail at Earleen Thomas or call us directly at 800-705-7742.
© 2000 Hilb Rogal & Hobbs Professional Practice Insurance Brokers, Inc. All Rights Reserved. California License #0641361.