A&E professional liability - group vs own policy

[Rob]

Can someone point me to a resource which give the advantages vs. disadvantages of an engineering firm purchasing their coverage through an Association (or let me know of any disadvantages you know about). I've analyzed the policy and it is pretty straight forward. However, it defines the policyholder as the Association and covers each "insured" under a schedule. Each insured has its own limit. Something about not being the actual policyholder makes me feel uncomfortable.

[wlunday]

Hi Rob. Many of these association plans limit coverage for "prior acts" and act like a "claims-made" contract without any tail coverage. That is one way for them to be less expensive.

If you client is selling donuts it may be OK, but for an engineering firm that has years of prior exposure they should consider all the past exposure and make darn sure it stays covered. I recently visited with the CEO of a medical product manufacturer. A young broker was trying to sell them on saving $8K on the products liability by switching to a claims-made" without a tail... turned out that once the price of the tail was added it was better to stay with their occurance policy. Council them to make sure they don't accidentally lose coverage for prior acts!

Swymmer

[Rob]

Hi Rob. Many of these association plans limit coverage for "prior acts" and act like a "claims-made" contract without any tail coverage. That is one way for them to be less expensive.

If you client is selling donuts it may be OK, but for an engineering firm that has years of prior exposure they should consider all the past exposure and make darn sure it stays covered. I recently visited with the CEO of a medical product manufacturer. A young broker was trying to sell them on saving $8K on the products liability by switching to a claims-made" without a tail... turned out that once the price of the tail was added it was better to stay with their occurance policy. Council them to make sure they don't accidentally lose coverage for prior acts!

Swymmer

Hi Swymmer,

Thanks and that is a good point. Unfortunately I do not know if this Association policy will grant prior acts or not if the insured has had coverage and shows evidence. Maybe they do.

[scott]

The prior acts issue is absolutely vital as is the ability to buy a tail down the road. Just asking the questions will advance the idea that this is NOT a simple decision to be made by comparing premiums.

Other questions to advance the perception that you are the guy to help...

-Who is the carrier? What is their financial strength? This policy will rescue your prospect from the boiling cauldron of an e&o claim. Strength of insurer is vital.

-What is the definition of wrongful act? How broad is the wording?

-Who is an insured?

-What is the definition of professional services? Are there any areas of the business that fall outside this?

-What are the exclusions?

-Can the program offer D&O coverage too? Might there be advantages to having pro liab and d&o with the same insurer?

Many of these programs are sold on the argument that the plan was designed by the association for the association. There is tremendous credibility issues at stake. Be cautious that you criticize the plan's inability to meet the needs of the client rather that the plan is bad - you should not criticizes the association.

[Rob]

The prior acts issue is absolutely vital as is the ability to buy a tail down the road. Just asking the questions will advance the idea that this is NOT a simple decision to be made by comparing premiums.

Other questions to advance the perception that you are the guy to help...

-Who is the carrier? What is their financial strength? This policy will rescue your prospect from the boiling cauldron of an e&o claim. Strength of insurer is vital.

-What is the definition of wrongful act? How broad is the wording?

-Who is an insured?

-What is the definition of professional services? Are there any areas of the business that fall outside this?

-What are the exclusions?

-Can the program offer D&O coverage too? Might there be advantages to having pro liab and d&o with the same insurer?

Many of these programs are sold on the argument that the plan was designed by the association for the association. There is tremendous credibility issues at stake. Be cautious that you criticize the plan's inability to meet the needs of the client rather that the plan is bad - you should not criticizes the association.

I just completed an analysis and was able to lay out nine disadvantages to the association plan which included

Non-admitted (Lloyds) vs current carrier which is admitted
Policyholder is the association, then insured is listed on a schedule of insureds
Does not provide assistance for "circumstance" reporting but still requires notification to company of potential claim
Definition of "claims expenses" includes "reasonable" wording and carrier is the sole decider of what is "reasonable"
Contains a "Hammer clause"
21 exclusions vs their current policy which has 11 exclusions
Excludes anything (directly or indirectly) arising out of mold
Excludes coverage for work performed for another entity in which the insured has an interest
Does not contain a severability/innocent principals clause

Some insureds, even ones who seem smart in many other business areas, can be funny though and often have the "it won't happen to me" attitude. We'll see what they think and I'll let you know.

[scott]

Rob,

Good start.

Another comment I regularly make to my agent mentor clients...

Remember your position in the transaction. You are a peer, not a vendor.

You are a trusted adviser with value to offer. "Frankly, some people take my advise and some don't. Those who follow my recommendations tend to do better than those that don't." is a phrase I coach my agents to use when working with their clients.

Do not allow a prospect to treat you as a vendor. They are not buying pencils. The professional liability insurance policy is the only thing standing between them and financial ruin if they ever have a claim. Your job is to make sure they know the stakes.

Here is another phrase I coach, "When it comes down to it, your decision can be based on one thing. Imagine you just got a letter from an attorney informing you of a suit he is filing. Who do you want standing next to you? A service rep with your association program or me, a local guy with expertise, experience, and a professional relationship with you?"

[Rob]

Rob,

Good start.

Another comment I regularly make to my agent mentor clients...

Remember your position in the transaction. You are a peer, not a vendor.

You are a trusted adviser with value to offer. "Frankly, some people take my advise and some don't. Those who follow my recommendations tend to do better than those that don't." is a phrase I coach my agents to use when working with their clients.

Do not allow a prospect to treat you as a vendor. They are not buying pencils. The professional liability insurance policy is the only thing standing between them and financial ruin if they ever have a claim. Your job is to make sure they know the stakes.

Here is another phrase I coach, "When it comes down to it, your decision can be based on one thing. Imagine you just got a letter from an attorney informing you of a suit he is filing. Who do you want standing next to you? A service rep with your association program or me, a local guy with expertise, experience, and a professional relationship with you?"

Thanks Scott, I really like both of those.

The perception of the insured was "My friend just got a quote through them and it was thousands less for EXACTLY the same policy". Well I told him, as you can see, it is not the same. The insured didn't come to me to "dump me" but asked If I can get him a quote through the association program. I can't because the association only deals directly with the customer. There was a huge difference in price for what his friend "who does the exact same thing and has higher receipts" (famous last words) got which was less than half of what the insured is paying. I think there are enough important differences in there to justify the difference. For example, I think the hammer clause alone is worth the price of keeping the other policy. In addition, he has me who pointed all of those differences out to him!

[pita3333]

[quote="scott"]Rob,

You are a trusted adviser with value to offer. "Frankly, some people take my advise and some don't. Those who follow my recommendations tend to do better than those that don't." is a phrase I coach my agents to use when working with their clients.

Do not allow a prospect to treat you as a vendor. They are not buying pencils. The professional liability insurance policy is the only thing standing between them and financial ruin if they ever have a claim. Your job is to make sure they know the stakes.


Scott & Rob: I have always disliked the word "customer" prefering "client". To me a customer is an occasional buyer of a product sitting on a shelf that can be bought at many different places. Somewhat like the vendor relationship in Scotts posty. While a "client" conveys a professional relationship. Where the client comes to me (or you) to figure out how to best (which is subjective) how to cover their exposure.

[ebrenneman]

these are all great comments I would also suggest that if you have the client get a quote from the association take that quote back to the current insurer and ask for pricing considerations loyalty helps and I often get at least 5% if not more.

[scott]

Michael,

A boss early in my insurance career told me that Kmart has customers, we have clients.

[pita3333]

these are all great comments I would also suggest that if you have the client get a quote from the association take that quote back to the current insurer and ask for pricing considerations loyalty helps and I often get at least 5% if not more.

Why beat down a good/great market with a good/great quote? Rob states that the hammer clause alone made up for the difference and the value of him pointing out the problems with the association program coverage. Perhaps present an alternate quote from the market with optional hammer clause, if available, and other reductions.

The principal at a previous agency I worked at would tell his clients "well I could perhaps get my pricing closer to theirs by reducing the coverage to match theirs", seldom did he have to actually do this. After all they wanted his experience and expertise (for which he was rightly recognized in their industry).

We see posts all the time about the soft market and getting beat up by it. Who drives the market? Do the agents/brokers have any responsibility for it? Do these same parties have any ability to stop the blood letting? Sure you will lose some, but in the end you are gaining what is really important...that client relationship in place of that customer relationship!

[ebrenneman]

Pita3333,
I agree, first make sure I read all the posts completely through. next articulate what I am thinking into words better!! I was trying to say once you have the quote from the association, strip out what the association does not include in the current policy and have the current company quote it apples to apples. if the client is that price sensitive showing him where he is spending his money and why can get off the price kick. Another thing not mentioned here that I did not see is that as associations go, the group as a whole is rated so a few companies in the association who have poor loss experience could cause the association to see increases across the board correct?