Focus On Claims: What are Your Risks?

Which type of design firms are higher risk in terms of professional liability exposures? And which projects tend to be riskier than others? Clues to these questions are found in XL Design Professional, formerly DPIC Companies’, 1996 Focus on Claims, a study based on more than 8,600 closed claim files from 1989 to 1995 and representing more than $269 million in claim payments.

XL Design Professional’s Focus on Claims shows that structural engineers are more apt to experience claims than other design professions -- and those claims tend to be expensive. While structurals generated less than 7% of the fees of XL Design Professional insureds for the base policy year surveyed, they generated nearly 14% of closed claims and consumed more than 20% of claims dollars paid by XL Design Professionals on behalf of its insureds.

There is good news for structural engineers, however. Their claims trend at XL Design Professionals has been improving over recent years, thanks largely to the efforts of the Structural Engineers Risk Management Council (SERMC), members of a special program of insurance and loss prevention services designed to reduce liability losses. In 1995, SERMC reported that the improved claims experience had reduced the cost of premiums for members by more than 33% since 1988.

How did the other disciplines fare?

• Architects appear to be a slightly higher than average risk (35% of fees, 37% of claims and 36% of claims dollars).
• Civil engineers look like a slightly lower than average risk (27% of fees, 23% of claims, 22% of claims dollars).
• Mechanical engineers have a slightly worse than average claims profile (9% of fees, 11% of claims count and 10% of claims dollars.
• Electrical engineers have a better than average claims profile (6% of fees, 3% of claims count and 2% of claims dollars.

By project type:

• Higher risk projects include condominiums, airports, bridges/trestles, high-rise structures, correctional/security facilities and hotels.
• Lower risk projects include colleges and universities, roads and highways and commercial/industrial projects.

It is important to note that these figures, while revealing as to historic claims by discipline and project type, address only two of many indicators of risk. Client selection, contractor/subcontractor selection, scope of services, contract language, professional expertise, staff training, geographic region and other factors impact risk as well.

To gauge risk, XL Design Professional’s Focus on Claims compared fee dollars generated by our insured design firms to claims dollars paid out by XL Design Professionals on behalf of our insureds, both expressed as percentages. This methodology was used because fee dollars represent units of risk exposure. For purposes of this study, an average risk is one where percent of fee dollars and percent of claims dollars are equal for the discipline or project type being examined. When percent of fee dollar is higher than percent of claim dollar, the discipline or project type is considered a lower-than-average risk. When percent of claim dollar paid for a given discipline or project type is higher than percent of fee dollar, then it is considered a higher-than-average risk.