In today’s business environment, the potential for litigation is a constant threat. Professional service firms must be ever mindful, and observe appropriate diligence in the exercise of service, advisory, and work products. Solid business practices, including logical and well-documented procedures, an internal document management system, and an appropriate level of quality control are all fundamental to producing a competent product that mitigates risk.
However, professional service providers need to share risk, and limit exposure to their firms and to their personal assets through the purchase of professional liability insurance.
Where do I start?
Consider asking your existing agency or carrier if it has a risk management program for your industry. Generally, this service is provided on a fee basis by an expert advisor who can educate employees on how to avoid risk, combined with implementation of appropriate insurance products. Frequently, the consulting fee covers the cost, or commission, of product implementation.
A risk management program may also include continuing education on risk areas in the marketplace. This sensitivity training focuses on best practices not only in day-to-day conduct but also in areas such as screening new clients and obtaining good background information. The size of a professional organization may affect the availability of these programs.
If your current agency does not provide a risk management option, consider researching firms that do.
Is it wrong to price shop professional liability coverage?
The cost of insurance is somewhat elastic; in good economic and market environments, insurance costs tend to soften as investments cover some of the loss experience. Uncontrollable events, such as a spate of claims in the industry or tightening of the markets, can raise premiums.
A good broker knows the market and shops the policy, as conditions dictate. Ask your broker to provide information on alternative quotes, and consider inviting an alternative quote from a different carrier and broker. In all cases, be mindful of the quality and strength of the insurance company writing the policy.
Are there alternatives?
Another option to consider is a reasonable level of self-insurance. The appropriate amount of self-insurance is dependent, among other things, on the trade-off of the reduced cost (premiums or risk management fees), the degree of risk associated with your profession, the ability and tax efficiency of creating a reserve fund, and the ability of the organization to withstand a potential charge against that reserve or to organizational assets.
Whatever your choice, the decision is not static. Continually review your risk as well as mitigating options to maintain the viability and continuity of your professional organization.
Timothy C. Hilbert can be reached at Email or 215.441.4600.