Architecture Firms: Building Risk Management

Architectural and design firms have their hands full when it comes to risk management, whether they're dealing with building information modeling or more traditional issues. The reason is that most firms operate on tight margins and are generally small.

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"The average firm is a small firm," says Lorna Parsons, managing director of the construction industry programs at Victor O. Schinnerer & Co., one of the largest underwriting managers of professional liability and specialty insurance programs, "so that the principals are the designer, they're doing the payroll, they're literally washing the windows, they're managing the clients--they have a lot going on."

Part of what they have going on is risk management. Velma Lane, senior vice president at Van Gilder Insurance Corp., in Denver, Colo., says a firm could pull in $50 million in billings before they hire a dedicated risk management professional. And about 85 percent of all firms, estimates Catha Pavloff, global design practice leader for Marsh USA's Construction Industry Practice, come in under this $50 million level.

Luckily, however, Parsons says that compared with the last few years, this year should be easier for firms because there is capacity and a lot of markets out there for professional liability coverage.

Today's practice top policy writers include XL DP, Lexington, St. Paul, AIG, Zurich and Ace.

"The joke is that it's practically everybody," Parsons says.

That doesn't mean professional liability is an easy purchase. "For most A&E firms, the cost of professional liability insurance is a significant line item in an annual budget," says Hall. "They (insurers) get a percentage of every dollar that comes in the door."

Still, bigger firms can afford to even buy coverage for individual projects. Lane says this coverage is not as available as it once was, and is cost-prohibitive for all but the most massive projects.

For the smallest firms, many have trouble getting any E&O coverage. One three-person design firm that requested to remain nameless was in the process of shopping for coverage, and could only find one insurer to provide a quote. The issue: it doesn't have a licensed architect on staff. The firm had been operating without coverage for the last three years.

November 1, 2006

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