Securing the Future: Smarter Insurance & Risk Strategies for Design & Construction’s New Era

[00:00:00] Paul Lucas: All right, hello everybody, welcome to today's webinar. We're just going to wait a moment or two while people file in. So while we are waiting, it'd be great if you could introduce yourselves. I'm going to be asking you to use the Q&A box at the bottom of your screen throughout this webinar. That will generally be used for questions that you want to ask the panelists, but why not introduce yourselves now? So if you do want to look down at the bottom of your screen, find that Q&A box, tell us what your name is, perhaps where in the world you are joining us from. It would be great to see some of your names pop up. But yeah, like I said, we're just going to wait a few moments while you all file into the room, and then we'll be handing it over to our expert panelists as they begin our webinar today. So like I said, there is a Q&A box down at the bottom of your screen. If anybody would like to introduce themselves there, that would be fantastic. And then join the webinar itself. That will be the place for you to go for any questions that you wish to pose. So, yeah, I think probably enough time has passed now. I think a sufficient number of you have joined us. So with that in mind, I will take the opportunity to properly introduce you to today's webinar, which is, of course, being brought to you with Victor Insurance. And the subject matter is securing the future insurance and risk strategies for an uncertain design and construction environment. So I am Paul Lucas, the Global Editor of Insurance Business.

 

[00:02:00] Paul Lucas: I'll be your host today as we explore the latest developments in the design and construction industry and their impact on insurance coverage. Risk management has become increasingly complex in recent times due to a confluence of factors such as rising material costs, labour shortages, supply chain disruptions, heightened legal risks and climate shocks that intensify all of those stressors. And as claims severity remains highly elevated, design and construction firms must reassess their insurance and risk management strategies to ensure financial resilience and to maintain a competitive edge. Now in this webinar we delve into how those factors are reshaping insurance needs. Before we sort of jump in in earnest a few quick notes we would love to hear your feedback on the poll questions that will be asked during this webinar so be sure to participate when prompted. This webinar recording will also be made available for all attendees after the event. So if you do have any distractions during the live feed, don't worry, you will get another opportunity to watch it back. And at the end of the presentation, there will also be, as I mentioned at the top, a question and answer session. So be sure to type any questions you have into the Q&A box at the bottom of your Zoom screen. Feel free to enter them throughout the recording. We'll store them up and ask them to our panelists at the end. Remember, the more feedback we get... the more we know about the issues and the concerns that you have around the construction insurance space. So please engage with us today using that Q&A function so we can point you in the right direction. Anyway, back to the subject matter at hand. In this webinar, you will gain valuable insights to help gain and guide your clients, ensuring they are well positioned with insurers. This webinar will go into depth on issues such as understanding...

 

[00:04:00] Paul Lucas: ...the key factors that are driving the volatility in the design and construction industry, including, of course, rising costs and legal challenges. You'll also learn how increased claims severity and economic pressures are influencing insurance strategies and coverage limits for design and construction firms. And we will also analyze real world case studies that illustrate the impact of these challenges on insureds and to help you secure the coverage that they need to thrive. But of course, we need some experts to do that. So to be our guides today, we have some people who are absolutely outstanding in the field. First of all, we have Yvonne Castillo. She is director of risk management. We also have Frank Musica. He is risk management attorney. We have Mark Ballen, a senior underwriter, and Janine Cole, also a senior underwriter, all of them from Victor Insurance and all with an incredible array of knowledge and experience to share. So team, it's over to you.

 

[00:05:00] Frank Musica: Thank you, Paul. Before we start with the actionable insights into navigating the evolving risk landscape, I need to add to the introductions. I'm Frank Musica, a professional liability risk advisor to our brokers and policyholders in the Victor program with CNA. And after my comments on the state of the economy, I will hand the program over to Yvonne, who is our senior vice president for risk advisory services and a nationally known expert on the causes and effects of climate change. And she'll give you a better understanding of how our increasingly severe weather events will affect the challenges for design firms, contractors, and you. And then our senior underwriters, Mark and Janine, will speak about what they see in the challenge of figuring out how what is happening now will need to affect insurance costs and limits so that we, you, and our mutual clients can survive these challenges. Now, let me give you a little history of our company. Our company, then Victor O'Shender and Company, started in 1938 in the District of Columbia. It was a general brokerage operation until Vic discussed the post-World War II construction boom with a friend who happened to be the president elect of the American Institute of Architects. They recognized that projects had problems, and those problems led to a rapid increase in claims against design firms and contractors. So along with the AIA committee and a committee from the National Society of Professional Engineers, Dick focused on the design firm problem and created the first professional liability insurance policy and the first risk advisory operation that provided protection and risk management guidance for architects, engineers, and other design professionals. In 1955, he looked for an insurance company that would take on the exposure and found what is now CNA. So that the company we now know as Victor became the underwriting manager and the risk education program and administrator, while CNA took the exposure and handled the claims. We date the actual program to 1957 because that is when AIA and NSBE made it their official insurance program. That unique arrangement started really in the mid 1950s. And that means that... Victor, the Victor program with CNA has been serving our client base for almost 70 years. Let's look at the agenda. Here are the three sections of today's program. And along the way, we will be asking you some polling questions. We also will have time at the end of the program to answer questions. I will start with the discussion of our current landscape. It might be better to call it our current quicksand or perhaps our current chaos.

 

[00:09:00] Frank Musica: This is the first poll we have for you. Which factor do you believe has the most significant impact on your client's insurance needs in the current market? Economic volatility, regulatory changes, increased project complexity, or supply chain and or labor issues please select one. And the answers are, it looks like economic volatility is the top answer. And I think that's a good choice. But let me mention that there was no all of the above answer you could select. But any of these might have the most significant impact on your specific client and that client's insurance needs. Now, let's move on to the presentation. I'll begin by examining three significant challenges facing the design and construction industry that will complicate your role as an insurance advisor. First, I want to address the uncertainty introduced into the construction industry by our current administration. As you know, ambiguity is something insurers typically dislike. It complicates the ability to price coverage effectively when there is no historical data on potential losses. This uncertainty further makes business planning almost impossible and increases the business risk of our clients. Next, I will talk about the consolidation of the design and construction industry. We are currently experiencing a wave of mergers and acquisitions, a trend that is likely to intensify as the impending recession raises questions about the viability of many firms. This disruption can hinder your efforts to help clients proactively identify and manage their risks, as the focus of these investors may not align with the goal of stability. And lastly, I will point out how increasingly frequent severe weather events create an exposure that is difficult to evaluate and insure. Yvonne will delve into how climate change is reshaping expectations for the design and construction of capital assets,

 

[00:12:00] Frank Musica: and I will inform you that both the clients in the industry and users of the built environment may file claims that fall outside the insurance coverage you recommend. Now, as we go to the next slide, I'm going to check our lights. Okay, one of the greatest challenges facing design and construction firms, as well as their insurance advisors, is the chaos we have experienced over the past six months. Capital projects represent significant investments aimed at achieving predictable and favorable returns, but this has become increasingly difficult in today's economy. Many projects are being delayed or canceled, and clients are focusing on cost recovery, often at the expense of design and construction firms. Design firms are under pressure from clients to specify only materials and systems that will be available and appropriately priced at the time of construction. Meanwhile, contractors are being asked to provide guaranteed maximum prices for projects without any acknowledgement of the need for adjustments due to fluctuating material costs. Compounding this chaos is the fact that in some states, the labor force on construction sites may include undocumented immigrants, sometimes accounting for as much as 40% of the unskilled labor. While construction sites cannot be rated without prior warning and a warrant, There's no restrictions on the government raids conducted near the work sites. As a result, contractors may find that many of their workers are seized after a lunch break. You know, you probably have seen that our government might tax Brazilian coffee and orange juice at the 50% rate. because our president does not like the current government in Brazil bringing fraud and corruption charges against its former president. That might raise your cost of breakfast at McDonald's, but it won't affect your life as much as a 50% tariff on copper.

 

[00:15:00] Frank Musica: Until federal land in Arizona becomes the largest strip mine in the country, and our smelters are increased to refine our own copper, the huge increase in copper prices will disrupt construction. And as the course. You know, so will the taxes on imported steel and aluminum and lumber and drywall. So not only will projects be affected during construction, but the cost of remedying any design or construction deficiencies years from now will be much higher and difficult to accommodate in the rating process for insurance. In this environment, it is challenging for companies to remain profitable or even viable if they cannot effectively recognize, manage, and manage their customers. and ensure their risks. Another issue to consider is the evolving landscape of risk management for insurance. Your expertise is invaluable to clients who are not only focused on managing today's risk but also for planning for the future by proactively addressing their risk exposure through appropriate coverage and management procedures. However, this landscape is changing as private equity firms increasingly acquire design firms, artisan contractors, and even major construction entities. These acquisitions are often viewed as short-term investments aimed at immediate profitability. Recently, we have seen venture capitalists divesting from previous purchases due to decline in the high demand for capital assets. Federal infrastructure programs have been significantly reduced. efforts to claw back funding or disrupting ongoing projects, and no one knows if projects other than data centers and warehouses will be viable in the future. As a result, the immediate financial returns that once attracted investors is no longer present. One response by these new owners is to reduce the professional staff and increase the use of artificial intelligence, further increasing their risk. While venture capitalists may continue to acquire the remnants of firms,

 

[00:18:00] Frank Musica: many do not understand the importance of appropriate insurance coverages to protect their investments. Consequently, these consolidation efforts aimed at lowering costs and increasing returns often lead to reduced insurance coverages, which are mistakenly viewed as mere expenses rather than essential protections for operations and investments. Your challenge, of course, is to develop strategies and utilize insurance tools that clearly demonstrate your value to these new clients. And let's take a moment to examine the challenges posed for both insurers and insured firms by the increased and severe weather events. Designed firms and contractors often operate within specific regions. And a changing climate has led to a rise in catastrophic weather events, such as high winds, flooding, extreme heat, that can result in localized damage. Firms that lack geographic diversity may find their viability threatened by the concentrated impact of these severe weather occurrences. And traditionally, design and construction firms have relied on a safe harbor provided by government regulations, enacted codes, and established standards. However, because severe weather events have not yet been fully integrated into these requirements, firms may face increased liability and unmanaged risks. These situations can affect several types of coverages. including, of course, professional liability, but also workers' comp and builders' risk insurance. Perhaps the most significant risk for firms you assist in recognizing and ensuring their exposures is the potential rise in third-party claims. While contractors and design firms can negotiate their liability concerning client claims, the reality is that anyone with a phone and a problem can become a plaintiff. With lawyers working on a contingent fee basis,

 

[00:20:00] Frank Musica: it could become a growth industry for them to persuade jurors to overlook reasonableness, resulting in verdicts that far exceed what insurance policies or the firm's assets can cover. And with that dire image, I will turn the program over to Yvonne, who will increase your understanding of why the catastrophic events you now see might be the new normal.

 

[00:20:30] Yvonne Castillo: Frank, one of the major forces reshaping risk in design and construction today, and as Frank said, it's climate change. We're all seeing more intense rainstorms as we're seeing the East Coast, Northeast as being inundated, severe flooding happening. Oh, sorry, you can go back to the other slide still. I just want to give an introduction before we jump into charts. Severe flooding, extreme heat, wildfires, of course, in the West. We just saw the Grand Canyon Lodge being burned to the ground. And it's this is all of these events are impacting how buildings, community and infrastructure perform. So with all of this going on, we at Victor, we're increasingly concerned about how design and construction professionals are going to get blamed when things go wrong, go wrong when these events continue to unfold and intensify. So for the next few slides. I'm going to dig a little deeper into the topic of climate and climate science, not because I'm expecting you or your clients to be experts in this area, but just like you follow developments that Frank was going over, for example, for construction costs like inflation, tariffs, labor supply challenges, supply chain challenges, and legal insurance trends, all of those things that are important that impact profitability.

 

[00:22:00] Yvonne Castillo: There's climate-related severe weather trends that are also becoming increasingly important to understand given the frequency and severity of these events that we're experiencing. The good news, before we move on, is that understanding climate science at a really basic level can tangibly help insureds see and prepare for what's coming and hopefully avoid potential claims and liability related to loss and damage. So let's take a quick look at what's driving the changes we're seeing in our weather. Jack, yeah, thank you. So first, what you're seeing here, I'm going to go through a few charts. This is from the National Oceanic and Atmospheric Administration. If you're not familiar with them, they're often referred to as NOAA. This is a federal agency that tracks our oceans and atmospheric conditions. And they've been measuring global greenhouse gas emissions since the 1950s. And as you can see here, there has been a steady, consistent, steep climb decade over decade for the last 70 years. So why does this matter? Well, at a high level, greenhouse gas emissions, they trap heat in the atmosphere, and that trapped heat is what fuels more extreme weather. One way to think about this, you may remember in eighth grade science, you know, you can imagine that the earth is wrapped in a big blanket. The more emissions that we add, those greenhouse gas emissions that we add to the atmosphere, the thicker that blanket gets around the planet. And the thicker blanket is going to hold more heat and more energy. And warmer air holds more moisture, which is why we're seeing these heavier,

 

[00:23:30] Yvonne Castillo: more intense downpours that are overwhelming stormwater systems, flooding streets, intensifying flash flooding events like we're seeing, just saw the terrible catastrophic event in Texas. And it's just causing more water damage, disruption to business and to communities, and of course, loss of life. So what's happening, as you can see, or maybe you're connecting the dots at this point, is that blanket is getting thicker and thicker with each ton of emissions that we're releasing into the atmosphere. So contrary to what people believe, or many people believe, these emissions don't easily dissipate or break down in the atmosphere. Each decade, each ton of emissions that continues to be released into the atmosphere just continue to build over time. So that blanket is just getting thicker and thicker over time. So what does this actually mean on the ground for insurance, for claims? The answer is that it lies in how much the planet has already warmed and is going to continue to warm. Next slide, please. Okay. So this chart is from NASA, a different federal agency, and it shows NASA's temperature data going back to 1880. The gray line is less important. It's kind of sporadic and jumpy. That is essentially demonstrating years temperatures compared to 1951, 1980 average. What you really want to look at here and what's important for this program is the black line. So for today's purposes and for just a simpler view, just kind of zero in on the black line and the trend line. It's basically showing overall rise in temperature over time. And so as you can see, you know, global temperatures are rising, especially since the

 

[00:25:00] Yvonne Castillo: 1980s. And you can notice that this matches pretty much the same trajectory that we saw on the previous slide of climbing emissions. So the most recent data shows that we've already warmed the planet by about 1.6 degrees Celsius since the industrial era began. So why does this matter? Again, for insurance, why does this matter to you all? Every small incremental change in global average temperatures, we're talking tenths of a degree, hundredths of a degree, every little increment can drive major changes in local weather extremes. And what that means is going to be more volatility in weather, which is going to be more loss and damage, more volatility in financial markets. There's a lot going on in financial markets trying to get their heads around how to manage these growing risks. So if we could turn to the next slide, please, Jack. So let's talk about money. So NOAA, going back to that first agency, the National Oceanic and Atmospheric Administration. They track U.S. weather disasters that cost over a billion dollars each, or at least they were tracking that. As you can see from this chart, that started in 1980. 2025, the administration has changed priorities, so we're no longer tracking this. However, there's some really good data here that you'll be able to understand better how this is working. But you can see in this chart basically large-scale disasters, so events that exceeded a billion dollars. And you can see that there's a change that's going on since 1980. If you kind of zoom in on 1880s, 90s, and early 2000s, generally speaking,

 

[00:27:00] Yvonne Castillo: we were staying under about eight per year of these billion-dollar disaster events. And as Jack just clicked through, we're now seeing 20 per year, so a very dramatic shift in that trend line. So as the frequency of these high-cost events goes up, So does the pressure on how design and construction stands. stakeholders plan, how we design, how we build, and more importantly for this audience, how we ensure the industry, how do we ensure its professionals and ensuring the properties that are being built, whether it's builders risk, property coverage, etc. So that leads to the next question and my final slide, are our design and construction assumptions keeping pace with the reality on the ground? Because obviously we can see from the scientific tracking that's been going on. There's a lot of change that's happening in a very short period of time. So let's understand a little bit about what's happening with our clients, with the design and construction world. First of all, I think fundamentally it's really important for everyone to understand, as Frank alluded to earlier, most building codes rely on historical weather data. So that's backward-looking weather information. Climate projection data is different. It is... forward-looking. It's giving us visibility into the kinds of extremes that we're likely going to see, like extreme heat, extreme flood, wind, wildfire, etc., into the future. And I don't want anyone on this webinar to think that forward-looking data is like a crystal ball. It's not going to tell you the exact date and time at a specific address what's going to happen,

 

[00:29:00] Yvonne Castillo: but it works more like, I think of it like a headlamp. It's going to give you just enough light to help people who are making crucial decisions, whether it's governments, design professionals, contractors, helps them see ahead to make smarter decisions considering these expected future conditions. And I will say, when you look back, if you want to do your own research, when you look back at climate modeling over decades, since the 70s, let's say, there have been studies looking back at those projected models to see how accurate they were based on observed experiences. And what we're learning is they have been remarkably accurate over the long term in projecting what sort of extreme conditions we're going to experience. So just so you know, we know that the leaders in the industry are starting to use this climate projection data. They're not relying simply on building code. So that is starting to happen. But I would not say that we're at a point where this is the standard practice. We're not there yet. It's starting to happen. What's important for you to know, again, from a legal standpoint, as Frank was talking about, we're starting to see some early signals from the court that design and construction decisions that are based solely on historical data, i.e. using building codes, without considering future forward data, like climate projection data, may not hold up in court if damage from foreseeable weather conditions occur. So we think at this point, we are advising our clients, we're advising stakeholders like yourself, whether you're dealing with project liability coverage, builders risk, professional liability coverage,

 

[00:31:00] Yvonne Castillo: or property coverage, you should at least know that this kind of data exists. It exists for free online. I checked before the webinar to make sure that stuff was still there online. But just having a basic understanding of what these climate projection tools are telling us about what's going to happen in the coming decades and the life of an asset that you may be working with a client on. What's great about these free online climate data tools is that it doesn't require any expertise. You don't have to be a climate scientist. All a user needs to do is go to the portals that are available. Again, free online. You type in your address for the project site that you're working on or if you're assisting a client. And in these portals I've listed here on the slide, you can go to NOAA Climate Explorer, NOAA Sea Level Rise Explorer. You can enter your address that you're interested in, and you can see what those projected hazards are going to be based on climate science. So, again, I've listed that here. One other last thing before I turn it over. The American Institute of Architects just last month launched a new climate screening tool for architects who are members of the AIA. It's a great service because it helps architects really be able to see those projected future risks for their projects. and that type of tool. is going to be more commonly used as the years go on, we expect, because it's really just a new and different way to think about risk, future risk, to think about investments and resiliency and what's needed, and just supporting clients. So with that, thank you for paying attention to this deeper climate issue portion of the program.

 

[00:33:00] Yvonne Castillo: I'll turn it over now to our underwriters to talk more broadly about insurance-related strategies.

 

[00:33:05] Mark Balon: Thanks, Yvonne. So we'll get started here talking about the rising cost of claims, how it's impacting our clients. Then we'll dive deeper into an individual claim scenario, see how that plays out in practice. And then I'll wrap my portion up with a little bit of guidance on how we can all move forward to hopefully avoid a similar claim situation in the future. So to kick things off, I think we'll have another poll question to start. What is the primary concern your design and construction clients have regarding their insurance coverage? We have rising premiums, adequate coverage limits, claims costs and processing times, and understanding policy exclusions. So we'll take a little bit of time here to get some answers in. And that's pretty much what I expected. Everybody always cares about the money, right? Rising premiums coming in up top at 70%. While all of these are important, that's obviously always on the top of folks' minds. So we'll get jumping into... the next slide here and take a look at some of these factors that are leading to those higher insurance costs. With respects to the design and construction industry, our firms that we work with are increasingly working on larger and larger projects from hundreds of millions of dollars to billions and billions of dollars. With those larger projects of today, Of course, comes increases to exposure, to risk, and in the event of a claim, liability. Coupled with that increase of project sizes, people want things quicker. It's 2025. People want things instantaneously. To that end,

 

[00:35:00] Mark Balon: project owners are insured clients, developers. rather than relying on traditional. design, build, delivery are increasingly looking at design, build, and integrated project delivery methods to speed that process along. With that, design and planning activities start sooner and proceed in parallel with other project phases, which compresses the overall schedule. This can diminish a design firm's control over certain aspects. including their ability to prioritize the quality of the designs that they're producing. Despite the collaborative intent behind these new methods, disagreements over responsibilities, cost overruns, and design changes can still occur. And resolving these disputes within in the integrated framework can be complex. While The design, build, and integrated project delivery can foster innovation and efficiency. Design firms need to carefully evaluate the potential downsides and ensure appropriate contractual and risk management strategies are utilized. Now, moving on from there, of course, sorry, last slide, please. We'll just jump down to the next bullet point on inflation, make it quick. Of course, everybody's heard on the news. probably the past five years, inflation is on the rise. When we're looking at that in the design and construction space, really what we're looking at is the producer price index. That takes into account raw materials, labor, and other inputs that our design firms rely on throughout their project cycle. To give a point of reference from 2020 to 2023. PPI was up about 25%. While the increases are tapering off, it is still increasing year over year. And so it's something that we are continuing to keep our eye on.

 

[00:37:00] Mark Balon: Traditionally, there's about a five to seven year tail exposure on claims. So that's from when the work was originally done to when the claim is finalized. And so when the costs have gone up 25 to 30%. that's going to drive an increase in the final payment amounts on the indemnity side. Secondarily, in addition to traditional inflation, there is social inflation. Juries are being more accommodating to plaintiffs and more punitive towards corporations. This gets into how societal norms are changing over time. On the right side of the screen, you'll see a few of these evolving risks, some of which Frank and Yvonne spoke to previously, specifically with regards to the severe weather events. We can move on to the next one and dive into an actual claim scenario. So this situation speaks to one of our clients. And it speaks to the importance of limits and the increasing need for higher limits. In this particular situation, R-Insured was the architect of record. They were the prime design firm on the project, hired by the owner. And as part of their responsibility, they were in charge of hiring the sub-consultants, including other design firms. one of which was the structural engineer. After the project was completed, the owner noticed cracking in the concrete foundation and upon investigation it was determined that this issue arose from structural design issues. The alleged damages were in excess of 10 million dollars. R. Ensured, the architect, had made sure in their sub-consultant agreement with a structural engineer that they maintained professional liability. and maintained at least a $3 million limit. Unfortunately, that sub-consultant, the structural engineer's

 

[00:39:00] Mark Balon: $3 million limit, was not enough to cover the costs of this claim. And through the vicarious liability, once the structural engineer's limit was exhausted, the architect's $5 million limit was also exhausted. And in order to get everything settled with the claim, some folks ended up having to pay out of pocket. And so that gets to the point that a million dollars isn't what it used to be. And we are seeing an increase in severity and higher claim payouts, as well as higher contractual obligations for limits. And so next we'll take a look at how we can solve for those issues. That really gets into the question of limits adequacy. I'll say from my perspective, historically, a $5 million limit for larger firms was fairly standard. For smaller firms, somewhere between a $1 to $3 million limit on their practice policy was relatively normal. We've been seeing increased requests across the board from small, medium, and large-sized firms to carry higher primary limits of liability. Now, when those requests come in, there can be several ways to solve for them. Like I mentioned, it could be a simple increase on their practice policy. Rather than having a $5 million limit, they carry $10 million across the board now. That, of course, has a significant increase in costs. on the premium side of things. Some other areas folks might look to solve for these limit issues could be excess, whether it's on a blanket basis covering all of their design work or on a project specific or client specific basis, dedicating those limits to one to a few jobs. One additional option is standalone project-specific policies, which encompasses the entire design team. So the architect,

 

[00:41:00] Mark Balon: the engineers, whether they're the structural, the mechanical, the electrical, the geotechnical, are all wrapped up into one policy. And that policy sits as primary on the project with all of those design firms' practice policies then sitting as excess atop it. Those are increasingly being used on extremely large projects, but there is a high cost associated with them. And with the bigger premiums that we're seeing, people, of course, like 70% of the audience said, folks are concerned about their premium costs. Now, one way to mitigate those increases is with, of course, deductible increases, which also helps to limit incurred claims. claim amounts and keep those costs down. But one issue folks tend to run into from a contractual standpoint is they might have a stipulation to carry a low deductible. That is something that can be solved for relatively easily with a modified deductible endorsement, which allows the design firm to evidence a lower deductible when required by written contract. And lastly here, we will quickly take a look at some different areas to focus on in checking coverages. Obviously, every policy form is different. Every program is different. But as the frequency and severity of claims continue to grow, it's important to make sure that our clients are having their needs met. One of the best ways to mitigate claim costs is to get the insurance carrier involved early, and they can engage with counsel on the insured's behalf and help to resolve an issue, hopefully before it grows into a full-fledged claim. Now, two areas that can help with this are pre-claims assistance, similar to what I just described, and additionally,

 

[00:43:00] Mark Balon: separate but equally as important, is rectification coverage. This is a separate component to the policy form and acts in a similar way to first-party coverage in that the design firm is able to report an error under their own policy before a third party makes a claim. This allows them to resolve the issue earlier and hopefully, potentially before anybody else notices, which helps to preserve their reputation in the industry and with their client, as a lot of our firms have a high level of repeat clients. Two other areas to be aware of, pollution liability, as well as cyber policies. Cyber risks are increasing across the board and have been for the past five years. And it's important to look for a robust policy form there to truly cover those risks and not rely on a supplemental coverage exclusively for those. So from here, I will be turning it over to my colleague, Janine Cole, and we'll have some further discussion on some client guidance.

 

[00:44:00] Jeanine Cole: Thank you, Mark. Before we jump into that, I guess we can jump into our last Poll question. How frequently do your clients request updates or changes to their insurance policies? Monthly, quarterly, annually, or only after a claim or an incident? It'll be interesting to see the results pop up here. As an underwriter, I usually see about one midterm change per year, if that, and then anything that comes up at renewal. annually. That's pretty much about where I am, so that answer tracks. Okay, so our last bit before we jump into Q&A is touching on client guidance. What I want to talk about is how best to navigate our quickly changing environment with all these new changes and challenges facing us.

 

[00:45:00] Jeanine Cole: The best strategy sometimes is to fall back on what we all know. Relationships matter. They matter in all types of ways, but I have a few examples to share based on my personal experience. For example, with brokers I know well, sometimes I can catch unintentional errors or missing information on an application. You get to know the rhythm of how someone works, when to expect things, and how best to communicate effectively. When a challenge does arise, trust matters. so you can have confidence that the information provided is accurate and reliable. Information matters. The more information an underwriter has about a firm, the more tools they have at the ready when evaluating pricing. If premium relief is needed on a renewal, when underwriters have quality applications, details on a firm, it becomes possible to access a wealth of information, not only on the current state of a firm, but past information that helps to spot trends or patterns which may inform a way for them to provide more flexibility. In the event of a claim, in the context of the renewal process, when marketing an account, nothing is more valuable to an underwriter than having an understanding of a claim up front as well as the lessons learned as a result of that claim. Having that information can change a declination into a willingness to work through an account despite a loss. This leads us into the next slide. Before a project starts or a claim arises, consider the potential client. Are they in good standing with strong financials? Are you being asked to come in midway through a project when there's been a disruption to the work? Consider the project. Is it a familiar project to the firm? Are there colleagues at the firm with experience working on this type of project?

 

[00:47:00] Jeanine Cole: Are the services within the typical scope of the work that the firm provides? Are climate change factors going to impact the design and our services needing to be provided? Lastly, is the client amenable to the contract you provide? It's important to limit exposure via contract. This can be done by including limitation of liability provisions within a contract and conducting a contract review. VICTOR can provide contract reviews in two ways. Utilizing our contract sifting tool. This can be found on our website and it reviews contracts in real time and points out any risk management issues that need to be addressed or you can submit a contract review to our risk management team. One last thing, if a claim does occur, the same philosophies apply. Communication is key. Report circumstances quickly and provide detail and endeavor to work with carriers to resolve issues early. With that, I'll ask you to put any questions into the Q&A box and I'm going to hand it over to Paul for the Q&A.

 

[00:48:00] Paul Lucas: Hey, just a slight delay there as I switch my camera back on, but good to be back with you. Yeah, fantastic webinar. Huge thanks to all of the analysts today. We now have just enough time, as indicated, to take some questions. So as mentioned, please enter them into the Q&A box. If you haven't already, we'll try to fit in as many as we can. Our expert team behind the scenes has been gathering some questions as the webinar has been going on. So thanks very much for those who've inputted some already. So I'm going to throw one straight at the panelists, but like I said, do enter some more into the Q&A box at the bottom of your screen and I will read those out in the time we have remaining.

 

[00:48:45] Paul Lucas: But the first question that we stored up from earlier is, can you provide examples of how strategic policy planning has helped clients mitigate risks in their projects? Anyone keen to take that one?

 

[00:48:55] Mark Balon: Yeah, sure, Paul. I can field that one. So strategic policy planning and how it's helped to mitigate risks in our clients' projects. What I think back to initially is a couple of things I mentioned earlier. One is the pre-claims assistance that can commonly be found in professional liability policies, allowing engagement with defense counsel early should an issue arise. Along with that, the rectification coverage to make a fix to a design error before it grows into something larger. However, backing up before something even becomes an issue, I think looking at our policy form, we actually provide some guidance to our clients within the policy language itself in that we offer a risk mitigation deductible credit. However, in order to qualify for that, you have to meet specific criteria on the project, which evidences good risk management. And then it's laid out, including written contracts with the client themselves, written contracts with sub-consultants, engaging in pre-project planning processes, utilizing peer review and other things of the sort and so those are those are some areas you know where the policy could help to some clients to mitigate risk okay excellent answer all right so I will move to the second question again please enter them into the Q&A box we are getting some more coming in so that's great to try to get through as many as we can in this remaining 10 minutes or so the next question is

 

[00:50:10] Paul Lucas: What role do you see technology playing in the future of insurance for the design and construction industry? And are there any specific tools or platforms that you would recommend? Anyone on the panel want to take that one?

 

[00:50:20] Yvonne Castillo: This is — and literally just upload a contract that you may be negotiating with your client or an architect or engineer may be negotiating with their client and within just a couple of minutes they the AI that we've coded on the back end to flag issues or missing concepts it will tell the user, hey, we found these issues. We found some issues of insurability, some issues relating to, you know, risks that you may not want to take on, maybe outside of your coverage. But it's just a nice sort of having Victor on your shoulder or self-service platform. So that technology platform. We also have a continuing education platform that we've had in place since 2018 where the architects and engineers, we recognize they need to continue to get education on an annual basis to maintain their license. So we have a platform where they can on demand 24-7 go take a course in risk management, compliance issues, ethics issues, and can get continuing education credit. And depending on the state in which you practice, can apply that to your requirements for licensure in your state. So we have that. We also have an ESG risk rating tool, and this is a self-service tool where if you're a firm and you want to understand better what your future emerging risks, how you perform against future emerging risks like climate change, decarbonization, those kinds of things, and you want to understand better, is my business aligned with that strategically to manage those emerging risks? The ESG risk rating tool is self-service. Again, it's free. And if there's a charge, you can go in as a firm, as a design firm, answer questions and understand what that risk looks like and how you might perform.

 

[00:52:00] Yvonne Castillo: And then the final technology-based type platform, I referred to it in my program on climate. The AIA just launched last week a screening tool that helps architects specifically understand what those risks are going to look like based on climate science for their projects. and what's great about that is and we're we play in this is that if you are an insured of ours you can go get access that climate science through the aia trust and get a 25 discount because you're an insured of ours because we want to encourage our our clients to be utilizing this data to understand better how to design and plan for decades into the future there is a promotional by the way discount of 35 if you get if you uh any of your clients request this in july but it's those kinds of technologies that we really have been kind of ahead of the time. the game and developing for the benefit of our clients. So I think we've got a link that we can put and share that kind of summarizes all of this that I just talked about so you don't have to have copious notes on this. But I think, Marilyn, you were going to upload that.

 

[00:53:00] Paul Lucas: Yeah. Thank you so much. Just battling with my microphone there, but yes, excellent stuff. So a lot of great examples there. I'll move on to a third question now for the team. I'm not going to read out the names of the people who are submitting these questions, just in case you prefer anonymity. So we've got a few minutes left. Like I said, please file more into the Q&A box and we'll try and fit in as many as we can. And so the next one is, in your experience, what are the most common misconceptions that clients have about their insurance coverage in the design and construction sector? So what are the most common misconceptions that clients have.

 

[00:53:40] Jeanine Cole: Anyone want to take that?

 

[00:53:42] Mark Balon: I can take that one. Thanks, Paul. The biggest one by far is additional insurance and how they're handled under a professional liability policy. The thing to remember is that a professional liability policy is providing coverage for a service that the insured is providing. Since no other party is providing this particular service, there's no additional protection afforded by adding another party to the policy. In addition, a professional liability policy also includes standard wording, which excludes coverage for any claim brought by an insured under the policy. That means by adding someone as an additional insured, essentially you're excluding them from coverage under that policy. So that's a big one. Another misconception involves billings and how they are reported. Since professional liability coverage is a claims-made coverage, the exposure under that policy lies in the past. So for this reason, prior year billings are what underwriters use when they're reviewing a firm. Some carriers may use an average of current and prior projected, but in all cases, reporting accurate prior year billings matters, and they're instrumental in the underwriting process.

 

[00:54:50] Paul Lucas: We've got two more currently in the Q&A box. Let's see if we can squeeze them in. The next one then is, I've often heard that rectification coverage is much more useful to a contractor than to a design professional. What does a rectification claim typically look like for a design professional? Anyone can take that? Got our panelists thinking. Whoever wrote that question?

 

[00:55:10] Mark Balon: I can take it since I just... finish talking just one little bit more. One that I always come to for rectification coverage would be for like a mechanical, like a HVAC engineer. You know, the calculations have been completed for the duct work and during the process it's noted that the measurements are inaccurate and things aren't going to work as intended. the insured can file a claim right then to rectify those measurements and move on and correct them before the third party the project owner files a claim so it avoids a whole lot of additional expenses when if that claim were to progress after construction was completed

 

[00:55:50] Paul Lucas: All right. So just I think we probably just have the time for this last question here. So are you seeing people have success pushing back on architects, engineers with their limitations of liability? So are you seeing people have success pushing back on architects and engineers with their limitations of liability? Anybody want to take that?

 

[00:56:05] Frank Musica: Yeah, I'll gladly take that one. I think it means are architects and engineers able to get limitations of liability? Yes, they are in a number of ways, whether it's a waiver or consequential damages or whether it's a limitation to the available insurance coverage. I think a lot that architects and engineers prefer to work with understand what the risks are and are willing to look at what the insurance coverage is. Is it adequate? What's the likelihood of a claim in this kind of a project situation? And will limit their liability because they know that it's realistic to do so. And limitations of liability, no matter how they're structured, It'll really help in the claims handling process because whether or not they might be suspect from a legal standpoint, they serve as a lower level to start negotiating on settling a claim. So, I think they can be very useful in both setting the expectations of a client and setting the risks of the engineer, the architect, or even the contractor.

 

[00:57:00] Paul Lucas: And we've actually just had a quick follow-up to that from the same person. They said, my question is actually about keeping them from limiting their liability. They aren't accepting responsibility for the damages they created.

 

[00:57:10] Frank Musica: Well, it's not so much that they're walking away from the damage they created. The question is, are you hiring them for their skills? Are you paying them adequately? Do they have enough time to do the project? and what is realistic. for the risk they can take. Because remember, an architect or an engineer is making a very small amount of money in providing the services compared to what that risk could be. So if you want to start paying a lot more for the risk they're taking on by not limiting their liability, pay them more. But otherwise, look at what's realistic. Look at what you're actually paying them to do, what control they have. and what other factors may end up affecting where the damage comes from. And if you're willing to select on the basis of qualifications and competence, if you're willing to work with that design professional, you're probably not going to see major claims against that design professional. If you're hiring that design professional and assuming you can have a cost recovery action later on, that's a bad way to get into a project. So yes, you can tell them we won't accept any limitation of your liability, but it's probably unrealistic to do that. And you may be losing out on some skilled professional services because of that.

 

[00:58:10] Paul Lucas: Well, indeed, that is all we have time for today. Huge thanks to everyone who participated in our polls and with the questions. Remember, if you missed any of today's recording, it will be available on the Insurance Business America website in the coming days. In the meantime, thanks again to Victor Insurance and on behalf of Insurance Business. Take care, stay safe, and we hope to see you all again soon.