[David R. Carothers, CIC, CRM]

Will,

While I have no direct experience with the firm mentioned above, I did peruse their website and it looks like they have a quality product specifically designed for your occupation. More importantly, they hit all of the correct key buzz words that I mentioned above in terms of contract review and a more traditional risk management approach as opposed to selling you a product. The best thing that I read is that they are up front with you about the fact that they expect you to operate your business professionally and if you don’t, you aren’t the right fit for them. I would say that it is worth a phone call to them, they can do you far more good than bad.

—David

[David R. Carothers, CIC, CRM]

I negotiate directly with the underwriters because I have the ability to tell the client’s story. More importantly, I have a bucket of premiums with each underwriter that I can use to leverage if need be. I apologize for the typos in the last response, by the way. My computer is skipping characters for some reason and I didn’t catch everything. I can assure you I know how to construct a sentence 🙂

I probably wasn’t clear on my thoughts on the per project deal. What I wanted to convey was that many people buy insurance to get a specific contract or a specific deal done. They do this because it is what their customer is telling them they “have” to do, not because it is in the best interest of their company. Once they complete the job, they carry the insurance until the end of the policy period and then they let it lapse. They may go a couple years before they need it again and then they buy it specifically for another contract. THIS IS NOT A GOOD WAY TO DO IT. You should always maintain continuous coverage because your liabilities don’t end when the job ends. They are infinite unless your state has some sort of a statute of limitations.

Tails are all over the place in terms of pricing. It really depends on the period. I would tell you that you can usually pick up an infinite tail for 2x the annual premium. Meaning, if you pay 5k per year, you can get an infinite tail for 10k. The people that usually get hammered the most on tails are Docs. Also the other thing that needs to be done is making sure you have a correct “retro date” to cover all the way back to the first time you had coverage. If you purchase a policy and two years from now, someone gives you a better deal, you can move the coverage, you just have them give you coverage for prior acts all the way back to the first date that you had coverage with the other carrier. This is a standard practice and doesn’t cost anything to do, it is part of constructing the policy directly.

[David R. Carothers, CIC, CRM]

Risk Managers and Lawyers read contracts differently. A lawyer looks at a contract to make sure you are protected and the contract is legal. I look at the contracts to make sure that the nuances are in the contract that will save you money on the placement of the insurance product. I guess the gest way to describe it is that risk management professionals and attorneys work in tandem to give you the broadest picture. A typical transactional insurance agent will ask you for a copy of your contract, have you fill out an application, attach the contract to the application and come back with a variety of quotes without ever reviewing the contract or giving advice. Essentially, they collect it as an underwriting support document and just shuffle it along with the other paperwork. As a consultant, I get compensated one of two ways. I either establish a service fee for my more complex clients, much like an attorney or accountat, or I take a commission from the placement of an insurance product. For larger, more complex operations, the service fee makes sense for both parties because there are a lot of moving parts and it allows both parties to budget and manage expenses. For smaller and emerging businesses, it makes more sense to take the commission and disclose that amount to my client so that they know what I get paid. It is not really that expensive, it just depends on the size of the engagement. It really boils down to the value that you give your clients. You can pay a premium, pay an agent commissions and do it over the phone with no support, or you can do the same thing and gain the insight and expertise of someone like me.

There is one other important thing to consider with professional liability that I forgot to mention when I was shaking the cobwebs out last night, and that is tail coverage. Because the coverage is on a claims made basis and not an occurrence basis, you are required to have coverage in place when the claim is made. When the policy expires, if coverage is not replaced wtih another carrier, you have a 60 day grace period for claims to come in and then coverage ends. The question becomes, what happens if you buy insurance for a specific project because it’s required and then you don’t renew? Two years down the road there is a professional liability claim against your work. You have no coverage. Once you buy it you have to maintain it, or you buy what is called “tail coverage” . Tail coverage eliminates the scenario I just described. It protects you from events in the past. You can buy tails for a specified period of time, or you can buy them for an infinite time. Tails are usually sold as a multiple of premium.

[David R. Carothers, CIC, CRM]

Also, professional liability policies/errors and omissions poolicies work the same regardless of inustry. There may be a nuance here or there that is differenct, but regardless of occupation, the above comments are safe and applicable.

[David R. Carothers, CIC, CRM]

Let me put a quick disclaimer on this. I am not a transactional insurance agent. I am a risk management consultant that works with technology and life sciences companies of all shapes and sizes. I have the ability to place insurance, but our goal is to educate our clients to make sound business decisions and transfer as much risk as possible which enables them to either get better pricing on their insurance product or transfer risk contractually and remove the need for insurance. I am more like an accountant or an attorney as I am trusted advisor as opposed to someone trying to sell you something.

Now that we have that out of the way, there are a ton of considerations when it comes to professional liability. I wish I could tell you that it is a one size fits all product, but it isn’t. Professional liability is a fickle mistress that will tempt you with price and leave you at the altar at the time of a claim. Some things that you need to look for specifically are:

1) Is the policy on a claims made and reported or a plain claims made form. This is a big difference at the time of loss.

2) What is the “hammer clause” in the policy? It is often called a consent to settle clause as well. Basically what this does is protect the insurance company. In the event you have a claim and there is an offer to settle, for say 25k and you choose to continue to fight the claim because you want to preserve your reputation. After litigation, the claim pays out at 100k rather than the initial 25. You are on the hook for the additional 75k Not good. You want a liberal consent to settle clause that will split the difference with you 75%/25% with you being the 25%.

3) What type of deductible do you have? Is it per occurence or per claim? Is their a definition of a claim that will lump all claims on a specific incident together?

4) What type of financial qualifications do you need to have to get coverage? Professional liabilty pricing is directly related to the financial health of your organization. The better your financials, the better the pricing.

5) What does your customer agreement look like? What you do in your client agreement in terms of hold harmless, breach, warranty and remedy can be the difference between you getting into a admitted market or excess and surplus lines.

6) What do your contracts require you to carry? Do the requirements match up to the exposure of your job? I have a client that was going to do some food testing for the city of New York. The contract was 36 pages long and the insurance requirements were ludicrous. I asked him how much he was going to make on the job and he replied it’s the city of New York. I told him that he would want to flag his marketing budget for the 20k increase in premium if he did the job because that was all he was doing…marketing. It wasn’t worth the cost just to say he had the city of New York as a client. Most contracts are negotiable if you know how to talk to your customer. I run into the situation all the time where a client has a signed contract and then is forced to comply. Share the contract with your advisors on the front end. It will allow you to negotiate and will save you a lot of money in the long run.

7) What are the payment terms? Can you break the premium up into payments or do you have to run through a premium finance company? If you have to go through premium financing it isn’t a big deal but you want to be sure there aren’t added interest points or an increased interest rate.

8) What is the financial strength of the company? Are they going to be around again or are they going to be the next government bailout?

9) Most importantly, the description of operations on your policy has to be 100% accurate. Anything that you do outside of the description of operations is not covered.

10) Be honest on your application. The application is made a material part of the policy upon issuance and can come back to haunt you if you stretched the truth.

11) Be conservative on your projections. If you know you are going to do 1.5 mm in sales this year, use that number. If there is an outside chance you coudl do 2mm in sales, stay with the 1.5mm. The company will audit you at the end of the year and you can pay the difference in premium owed at that time. Don’t let them have your money for a year, you need it to grow your business.

12) Stay away from products that throw in some limited professional coverage on a business owners policy. It is a recipe for disaster.

I know that you asked if there was a reputable company out there and the answer is yes. There are a handful of domestic companies that offer great products fro technology and life sciences clients. They do their homework on the underwriting end of things and are able to offer very competitive rates as a result. Chubb, Travelers, Zurich, Hartford, Ace, C N A and One Beacon are a few off of the top of my head.

If you have any other questions, or would like to read more about our philosophy, I have a couple of case studies posted in addition to some content at http://www.hubpages.com/profile/praxiom. You can also connect with me on twitter at @drcarot or @praxiomrm. I have also posted bios and some overviews on slidshare, our username is Praxiom.

I hope that I have helped answer some questions. I may have made your head swim even more. Feel free to contact me if you would like me to help further.

[Author]

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