SELLING insurance to architects and engineers, the so-calleddesign professionals, is always challenging, but perhaps never moreso than in the hard market. At Johnson Insurance, we decided tochange our sales approach as a result of it.

Over the past couple of years we have shifted our emphasis frommass marketing to targeting a limited number of large accounts.With this approach, we leverage our expertise, our current book ofbusiness and other resources to the greatest extent possible. Inparticular, the services we can offer to large design professionalshelp set us apart from many competitors. I'll elaborate on thesepoints after first telling you a little bit about our agency.

Johnson Insurance is part of the Johnson Financial Group, whosemore than 1,000 domestic and international employees offer banking,investment and insurance services. Over 100 of those employees workat Johnson Insurance, which, with more than $12 million in annualrevenue, is one of the largest independent agencies inWisconsin.

I work in and manage Johnson Insurance's professional liabilitydivision, which provides products and services to lawyers,accountants and health-care professionals, as well as to designprofessionals. Our marketing efforts are focused mainly onWisconsin-based firms, although some of our clients have facilitiesin other parts of the country. Consequently, we've become licensedin just about all states. We insure about 70 design professionalfirms. Many are small concerns with annual receipts up to $500,000(the cutoff for most insurer's small-firm programs.) The solepractitioners among them often qualify for $1,500 to $2,000 minimumpremiums. At the other end of the scale, we insure numerous largeclients, which tend to be engineering firms. They may earn morethan $40 million in annual revenue and pay $250,000 or more inannual premiums.

For the past couple of years, we've been focusing our salesefforts on these larger concerns. When we were in a soft market, weoften found it difficult to persuade prospects to let us quote,since design professionals were getting price reductions every yearwithout having to shop their accounts. Consequently, we did a lotof mass mailings to a database of prospects. To increase ourvisibility, we also conducted seminars providing CE credit todesign professionals, in conjunction with state and localdesign-professional associations. We advertised regularly inseveral of these organization's publications as well. All theseactivities were aimed at getting us in front of as many prospectsas possible, which in turn would lead to more qualifiedopportunities to quote.

After the hard market hit, however, all design professionalbegan to see major increases in their professional liabilitypremiums, and it was no problem at all to get a chance to quote.Our response was twofold. First, we put an even higher prioritythan before on retaining existing clients, since it costs much moreto acquire a new account than to keep an existing one. Second,rather than spend our time pursuing smaller accounts that now wereaccepting quotes from just about anyone, we decided to focus on the25 firms in Wisconsin that we would most like to write. We realizedthat it may well take us two or three years to land any of theselarge accounts. But their size makes such an investment in time andeffort worthwhile. We also realized that these firm would be moreresponsive to the proactive services we were offering.

Selling to large accounts

One way we've approached these accounts is by asking ourexisting design-professional clients to introduce us to them. Suchpeer-to-peer referrals have helped us close on accounts in thepast. We also sometimes find that a lawyer or accountant insured byour professional liability division may work with one of ourtargeted design professionals and can help us get in the door. Wealso send these prospects personalized letters. They aren't tied toX-dates, as our mass-marketing letters often are, and they don'tseek an immediate opportunity to quote. Rather, we ask theprospects for 15 to 20 minutes in person to share our view of thecurrent marketplace, give them an idea of what to expect on renewaland learn a little more about their firms. If we do get in front ofthem, we try to ascertain what's important to them. Have theircosts gone up dramatically? How has their service been?

If we can meet face-to-face with these prospects, it usuallybecomes evident to them that we are specialists indesign-professional insurance. They see that we have much more thana superficial understanding of their business and are even able toanticipate many of their questions. We also present a list of 10 ormore current large clients who can serve as references for us. Ofcourse, we'll still need a superior product and a competitive priceto land a new account, but a perceived difference in ourprofessionalism and that of the current agent can mean a lot. Infact, we sometimes pick up accounts via broker-of-record letters,leaving the current insurance program largely intact. Indeed, wetry to persuade large accounts that picking an agent and selectingan insurer should be two separate decisions.

“We've invested a lot of money and time in setting up certainstandards and procedures that will ensure you receive the level ofservice you deserve,” we say. “If your current agent has not madesuch a commitment, then we don't believe they have earned yourbusiness.” We then discuss some of the key services we can provide.Allow me to elaborate on five of them.

1) An explanation of options when a design professional's clientrequests a higher limit. The owner of a large project may require abidding architect or engineer to carry higher limits of liabilitythan those provided by the design professional's policy. There areseveral possible responses to such a request, and each hasimportant implications.

One option is to raise the limit of the architects and engineersprofessional liability policy (the practice policy covering thefirm and all its design professionals). This can be a relativelyexpensive option, since the increased limits will apply to all ofthe design professional's clients.

A second option is to obtain a project-specific increased limitvia endorsement to the practice policy. By doing so, the designprofessional provides a higher limit just to the project ownerrequiring it. But, as we explain to insureds, the charge for thatendorsement will not be prorated, while an increase in the practicepolicy's limits would be. Assume that a design professional with a$1 million practice policy renewing Jan. 1 gets a request for a $2million limit on Dec. 15. It almost assuredly would be lessexpensive to increase the limits of the practice policy, since thepremium would be prorated, than to buy a project-specificendorsement and pay a year's worth of premium for 16 days ofcoverage.

We also ask how long the project owner requires the higherlimits to be in place. Naturally, the design professional will wantto work his insurance cost into his bid for the project. But ifhigher limits are needed for more than a year, the exact insurancecosts are unknowable. The project-specific endorsement and thepractice policy both provide claims-made coverage; so regardless ofwhich is used to provide higher limits, it will have to be renewedto provide continuing coverage-at a cost that's unknown. Of course,we help our client come up with the best estimate we can.

An owner of a large project may want higher limits throughoutthe course of construction and for five years after substantialcompletion. It can be very difficult to estimate the coverage costover such a span; it's even possible that the design professionalwon't be with the same carrier over that time. Furthermore, theproject owner really won't be guaranteed coverage. If the designprofessional goes out of business during those five years or hasits coverage canceled, the project owner may be left bare.

The project owner can overcome such obstacles by purchasing aproject policy, which will cover all design professionals workingon the project. Such an approach is sometimes used for unusuallylarge projects. The owner buys the policy and charges the premiumback to the design professionals the policy covers. The policy canremain in force for five years or for any other period the ownerspecifies. The owner still would have to sue the designprofessionals to collect under the policy-which would vigorouslydefend the architects and engineers-but at least there would becoverage. The drawback is that project policies are extremelyexpensive and not always readily available.

2) Information concerning mergers and acquisitions. Sometimesclients tell us they are planning to buy anotherdesign-professional firm and want to discuss the insuranceimplications. The first thing we ask such a client is whether he orshe is buying the other firm's stock or just its assets. If ourclient is buying the other firm's stock, the acquired firm will bemade a named insured on our client's practice policy, which willthen be exposed to all of the acquired firm's past activities. If abig claim comes up, it's going to be charged against our client'spractice policy, with all the negative consequences for futurerates and coverage that such a claim entails. Thus we advise ourclients to ensure that the business they're acquiring does not havemuch of an exposure-or to be prepared to live with it if itdoes.

Actually, making the acquired firm a named insured on ourclient's practice policy has some advantages-particularly for theselling firm. The firm won't have to buy an extended reportingperiod (“tail” coverage), because it will be covered indefinitelyunder the acquiring firm's practice policy. This approach also isless expensive than buying tail coverage. So an acquired firm mightbe thrilled to be bought via a stock purchase and have its exposurecovered by our client's practice policy. This could be asignificant bargaining chip for our client in the buy-sellnegotiations.

Of course, our client may prefer to structure the acquisition asan asset purchase for tax purposes, because of its attorney'sadvice or for some other reason. If so, we simply point out thatthe acquired firm is going to have to buy a tail policy that willcost them anywhere from one to three times their annual premium for(at most) five years of coverage. And after that, they will betotally bare, because no one is selling tail coverage for a longerterm than that.

There are other issues that come up with mergers andacquisitions. One is dealing with a key individual who plans toretire. Coverage under a design professional's practice policy isbased on the entity (or entities) identified as the named insured.Then, the policy's definition of an insured specifies that alldesign professionals who have ever worked at the firm are covered.But when a design professional retires, there is no guarantee he orshe will have ongoing coverage-unless he assumes the firm he'sworked for or was acquired by is going to survive and continue tomaintain insurance indefinitely. Sometimes in the negotiation of anacquisition, the selling firm's lawyer will want to insert a clauseinto the purchase agreement requiring the buyer to guarantee that aretiring seller will have coverage for 10 years. There's no goodway to provide such a guarantee, but at least we can make ourclient aware of the issue before the negotiations start.

Before moving on to our other services, let me acknowledge thatif an agency doesn't have procedures for handling questions abouthigh limits, mergers and acquisitions, etc., it can always referclients to their insurance companies, and they'll eventually getthe information they need. But that can turn a one-day process intoa two-week process. We explain to prospects that, if they becomeour clients, we know they will call at least two or three times ayear with such questions -and that we'll be ready to help themwithout having to say, “Gee, I'll have to get back to you onthat.”

That's because the five experienced CSAs working in ourprofessional liability division are all cross-trained in the linesour division sells. While clients will be assigned to one of theseCSAs, the other four also will be able to help if the assigned CSAis unavailable. Our retention rate is almost 98%, and one importantreason is that when clients call in with a question, they reachsomeone who is not hearing it for the first time. If the discussionescalates to a certain level of complexity, the CSA may turn thecall over to a producer or an expert at an insurance company. Butthe point is, we have a formal structure in place to ensure thatquestions are answered and services are provided without delay.

3) Acting as a “search engine” for clients. We get a lot ofcalls from clients seeking industry-specific risk- managementinformation. Even though our clients have access to thisinformation directly, we offer to conduct the search for them.After all, we have access to reams of information from all of ourcarriers' Web sites, newsletters and educational programs. Asmembers of the Professional Liability Underwriting Society, we cancome up with even more. After we locate the relevant information,we e-mail or fax it to our clients.

For example, a fairly common request by project owners is to bemade an additional insured or additional named insured on ourclient's practice policy, perhaps at the suggestions of legalcounsel. But that's really not advisable or even possible. For onething, if the owner were to sue the design professional, he wouldbe barred from seeking recovery under the policy by the insured vs.insured exclusion. Of course, a project owner more commonly seeksinsured status to obtain protection from third-party suits. Butarchitects and engineers professional liability policies only coverclaims alleging professional errors, omissions or negligence. Fewproject owners provide professional services, so they'd receive nocoverage from the policies. The best way for the owner to cover anyliability he may incur because of the design professional's workwould be to buy an owners and contractors protective liabilitypolicy. There are many good articles dealing with this matter onour carriers' Web sites and in other places. We're happy to trackthem down and provide them to an insured whose client is beingunreasonable about additional-named-insured status. Actually, onmatters like this that come up frequently, we usually already havethe articles ready to e-mail to our insureds, or we can send themdirectly to our insureds' clients along with explanatory notes.

4) Contract reviews. Just about all agencies that sellarchitects and engineers professional liability insurance offer toforward to carriers contracts that design professionals are askedto sign. The companies then analyze the contracts to see if theycontain any uninsurable exposures or present other problems. But wedon't just send a contract to a carrier and forget about it. Wekeep a copy of it and set up a diary activity in our computer toensure we follow up. If our client doesn't get a satisfactoryresponse from the carrier in a reasonable amount of time, wecontact the carrier. We follow the same procedure with claims.Clients love knowing that we are staying on top of thesematters.

5) Assistance with other lines of coverage. We've alwaysconcentrated on selling professional liability insurance and untilrecently have not tried to acquire a design professional's otherlines of insurance, but that has started to change in the last twoyears. Although I'm not quite sure why, more clients and prospectsseem interested in having us handle the general liability, packageand other lines for them, too. It may be that more designprofessional firms are taking on some actual construction work,which would affect the GL coverage; it could be the hard market; orit might be that more design professionals simply want to work withjust one agent to save time. While we're quite content to leave theother lines to a local agent, we're finding that our ability tohandle the total account is becoming another selling point. Becausewe are part of a large agency that handles all lines of insuranceand employee benefits, we can easily provide this service.

Company relations

Our main markets for architects and engineers professionalliability insurance are CNA/Schinnerer, St. Paul and Lexington. Wealso use Insight Insurance Services, an MGA specializing in thisline of coverage. While we're always looking for new markets, wewant to make sure we keep our current carriers happy. When we doaccess additional markets, we often go through a broker, which willhave a closer relationship with the insurer than we will. We'rewilling to take a little less commission by going this route, if itenables us to solve a problem for a client.

If we shop an account to four companies, three lose and only onewins. Therefore, we take an account to the marketplace only when weknow the client is willing to make a move and we know what theparameters are for making it. We also try to dissuade clients fromshopping their accounts if we don't think there is anything to begained. We might show a client what three similar firms are payingfor their coverage (without identifying them, of course). Thecomparison often shows that the client's premium is in the sameballpark. “If you're not willing to move for only a 5% difference,let's not burn out a market this year,” we may advise theclient.

We almost never send an application to a company without firstcalling an underwriter, describing the account, and asking whetherthe account is of interest and one on which they can becompetitive. We also never play games with applications. Mostcarriers will give premium indications from data submitted on otherinsurers' applications. While carriers are not bound by suchindications, in truth they almost always honor them, because they'dlook bad if they didn't. Sometimes an agent will not-so-innocentlymisrepresent the character of a risk by submitting it to a carrieron another insurer's application, which might not disclosesomething the carrier's own application would catch. An underwriterunderstandably is not pleased when he or she eventually sees hisown app (which must be completed before the policy is issued), andit shows something materially different from what the underwriterexpected.

We also inform underwriters of material facts that may not becaptured on an app. For instance, a client may inform us that theyare planning to merge with another firm. If so, we tell the clientthat we need to disclose this to the insurer. We stress to clientsthat our efforts to maintain credibility with the markets is reallyto their benefit. The trust that it builds ultimately may allow usto get things done for the client that a less forthcoming agentwould be unable to accomplish. When dealing with large accounts, Itry to have underwriters meet with clients. Some agents may fearthey could lose control over an account this way, but I find suchmeetings to be entirely beneficial-chiefly because they help buildtrust on both sides, which is invaluable if problems laterarise.

I also like to have company loss control people make onsitepresentations to clients and prospects. Such meetings can help tipan account our way. Even more valuable are face-to-face meetingsbetween prospects and a representative from a carrier's claimsstaff, which can explain how a typical claim will be handled.Bringing in all of these people can remove a lot of the fear andanxiety a large prospect might feel about moving his business.

Such concern is understandable. Unlike general liabilitypolicies, architects and engineers professional liability policiesare frequently called upon to provide coverage. Most of our largefirms are involved in some sort of allegation, lawsuit or claim onan annual basis. Some of these actions may come to nothing; otherscould result in serious losses. The point is, these policies areused. Therefore, it's vital that there be a high degree of trustbetween a design professional and the insurer's staff-particularlythe claims people.

As you may have surmised from this article, selling insurance tolarge design professionals is almost a specialty within aspecialty-and one that perhaps does not make sense for every agencyto pursue. But at Johnson Insurance, we strongly believe it's theright strategy at this particular point in the underwritingcycle.