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

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

Johnson Insurance is part of the Johnson Financial Group, whose more than 1,000 domestic and international employees offer banking, investment and insurance services. Over 100 of those employees work at Johnson Insurance, which, with more than $12 million in annual revenue, is one of the largest independent agencies in Wisconsin.

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

For the past couple of years, we've been focusing our sales efforts on these larger concerns. When we were in a soft market, we often found it difficult to persuade prospects to let us quote, since design professionals were getting price reductions every year without having to shop their accounts. Consequently, we did a lot of mass mailings to a database of prospects. To increase our visibility, we also conducted seminars providing CE credit to design professionals, in conjunction with state and local design-professional associations. We advertised regularly in several of these organization's publications as well. All these activities were aimed at getting us in front of as many prospects as possible, which in turn would lead to more qualified opportunities to quote.

After the hard market hit, however, all design professional began to see major increases in their professional liability premiums, and it was no problem at all to get a chance to quote. Our response was twofold. First, we put an even higher priority than before on retaining existing clients, since it costs much more to acquire a new account than to keep an existing one. Second, rather than spend our time pursuing smaller accounts that now were accepting quotes from just about anyone, we decided to focus on the 25 firms in Wisconsin that we would most like to write. We realized that it may well take us two or three years to land any of these large accounts. But their size makes such an investment in time and effort worthwhile. We also realized that these firm would be more responsive to the proactive services we were offering.

Selling to large accounts

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

If we can meet face-to-face with these prospects, it usually becomes evident to them that we are specialists in design-professional insurance. They see that we have much more than a superficial understanding of their business and are even able to anticipate many of their questions. We also present a list of 10 or more current large clients who can serve as references for us. Of course, we'll still need a superior product and a competitive price to land a new account, but a perceived difference in our professionalism and that of the current agent can mean a lot. In fact, we sometimes pick up accounts via broker-of-record letters, leaving the current insurance program largely intact. Indeed, we try to persuade large accounts that picking an agent and selecting an insurer should be two separate decisions.

“We've invested a lot of money and time in setting up certain standards and procedures that will ensure you receive the level of service you deserve,” we say. “If your current agent has not made such a commitment, then we don't believe they have earned your business.” 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 client requests a higher limit. The owner of a large project may require a bidding architect or engineer to carry higher limits of liability than those provided by the design professional's policy. There are several possible responses to such a request, and each has important implications.

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

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

We also ask how long the project owner requires the higher limits to be in place. Naturally, the design professional will want to work his insurance cost into his bid for the project. But if higher limits are needed for more than a year, the exact insurance costs are unknowable. The project-specific endorsement and the practice policy both provide claims-made coverage; so regardless of which is used to provide higher limits, it will have to be renewed to 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 throughout the course of construction and for five years after substantial completion. It can be very difficult to estimate the coverage cost over such a span; it's even possible that the design professional won't be with the same carrier over that time. Furthermore, the project owner really won't be guaranteed coverage. If the design professional goes out of business during those five years or has its coverage canceled, the project owner may be left bare.

The project owner can overcome such obstacles by purchasing a project policy, which will cover all design professionals working on the project. Such an approach is sometimes used for unusually large projects. The owner buys the policy and charges the premium back to the design professionals the policy covers. The policy can remain in force for five years or for any other period the owner specifies. The owner still would have to sue the design professionals to collect under the policy-which would vigorously defend the architects and engineers-but at least there would be coverage. The drawback is that project policies are extremely expensive and not always readily available.

2) Information concerning mergers and acquisitions. Sometimes clients tell us they are planning to buy another design-professional firm and want to discuss the insurance implications. The first thing we ask such a client is whether he or she is buying the other firm's stock or just its assets. If our client is buying the other firm's stock, the acquired firm will be made a named insured on our client's practice policy, which will then be exposed to all of the acquired firm's past activities. If a big claim comes up, it's going to be charged against our client's practice policy, with all the negative consequences for future rates and coverage that such a claim entails. Thus we advise our clients to ensure that the business they're acquiring does not have much of an exposure-or to be prepared to live with it if it does.

Actually, making the acquired firm a named insured on our client's practice policy has some advantages-particularly for the selling firm. The firm won't have to buy an extended reporting period (“tail” coverage), because it will be covered indefinitely under the acquiring firm's practice policy. This approach also is less expensive than buying tail coverage. So an acquired firm might be thrilled to be bought via a stock purchase and have its exposure covered by our client's practice policy. This could be a significant bargaining chip for our client in the buy-sell negotiations.

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

There are other issues that come up with mergers and acquisitions. One is dealing with a key individual who plans to retire. Coverage under a design professional's practice policy is based on the entity (or entities) identified as the named insured. Then, the policy's definition of an insured specifies that all design professionals who have ever worked at the firm are covered. But when a design professional retires, there is no guarantee he or she will have ongoing coverage-unless he assumes the firm he's worked for or was acquired by is going to survive and continue to maintain insurance indefinitely. Sometimes in the negotiation of an acquisition, the selling firm's lawyer will want to insert a clause into the purchase agreement requiring the buyer to guarantee that a retiring seller will have coverage for 10 years. There's no good way to provide such a guarantee, but at least we can make our client aware of the issue before the negotiations start.

Before moving on to our other services, let me acknowledge that if an agency doesn't have procedures for handling questions about high limits, mergers and acquisitions, etc., it can always refer clients to their insurance companies, and they'll eventually get the information they need. But that can turn a one-day process into a two-week process. We explain to prospects that, if they become our clients, we know they will call at least two or three times a year with such questions -and that we'll be ready to help them without having to say, “Gee, I'll have to get back to you on that.”

That's because the five experienced CSAs working in our professional liability division are all cross-trained in the lines our division sells. While clients will be assigned to one of these CSAs, the other four also will be able to help if the assigned CSA is unavailable. Our retention rate is almost 98%, and one important reason is that when clients call in with a question, they reach someone who is not hearing it for the first time. If the discussion escalates to a certain level of complexity, the CSA may turn the call over to a producer or an expert at an insurance company. But the point is, we have a formal structure in place to ensure that questions are answered and services are provided without delay.

3) Acting as a “search engine” for clients. We get a lot of calls from clients seeking industry-specific risk- management information. Even though our clients have access to this information directly, we offer to conduct the search for them. After all, we have access to reams of information from all of our carriers' Web sites, newsletters and educational programs. As members of the Professional Liability Underwriting Society, we can come 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 be made an additional insured or additional named insured on our client's practice policy, perhaps at the suggestions of legal counsel. But that's really not advisable or even possible. For one thing, if the owner were to sue the design professional, he would be barred from seeking recovery under the policy by the insured vs. insured exclusion. Of course, a project owner more commonly seeks insured status to obtain protection from third-party suits. But architects and engineers professional liability policies only cover claims alleging professional errors, omissions or negligence. Few project owners provide professional services, so they'd receive no coverage from the policies. The best way for the owner to cover any liability he may incur because of the design professional's work would be to buy an owners and contractors protective liability policy. There are many good articles dealing with this matter on our carriers' Web sites and in other places. We're happy to track them down and provide them to an insured whose client is being unreasonable about additional-named-insured status. Actually, on matters like this that come up frequently, we usually already have the articles ready to e-mail to our insureds, or we can send them directly to our insureds' clients along with explanatory notes.

4) Contract reviews. Just about all agencies that sell architects and engineers professional liability insurance offer to forward to carriers contracts that design professionals are asked to sign. The companies then analyze the contracts to see if they contain any uninsurable exposures or present other problems. But we don't just send a contract to a carrier and forget about it. We keep a copy of it and set up a diary activity in our computer to ensure we follow up. If our client doesn't get a satisfactory response from the carrier in a reasonable amount of time, we contact the carrier. We follow the same procedure with claims. Clients love knowing that we are staying on top of these matters.

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

Company relations

Our main markets for architects and engineers professional liability insurance are CNA/Schinnerer, St. Paul and Lexington. We also use Insight Insurance Services, an MGA specializing in this line of coverage. While we're always looking for new markets, we want to make sure we keep our current carriers happy. When we do access additional markets, we often go through a broker, which will have a closer relationship with the insurer than we will. We're willing to take a little less commission by going this route, if it enables us to solve a problem for a client.

If we shop an account to four companies, three lose and only one wins. Therefore, we take an account to the marketplace only when we know the client is willing to make a move and we know what the parameters are for making it. We also try to dissuade clients from shopping their accounts if we don't think there is anything to be gained. We might show a client what three similar firms are paying for their coverage (without identifying them, of course). The comparison often shows that the client's premium is in the same ballpark. “If you're not willing to move for only a 5% difference, let's not burn out a market this year,” we may advise the client.

We almost never send an application to a company without first calling an underwriter, describing the account, and asking whether the account is of interest and one on which they can be competitive. We also never play games with applications. Most carriers will give premium indications from data submitted on other insurers' applications. While carriers are not bound by such indications, in truth they almost always honor them, because they'd look bad if they didn't. Sometimes an agent will not-so-innocently misrepresent the character of a risk by submitting it to a carrier on another insurer's application, which might not disclose something the carrier's own application would catch. An underwriter understandably is not pleased when he or she eventually sees his own app (which must be completed before the policy is issued), and it shows something materially different from what the underwriter expected.

We also inform underwriters of material facts that may not be captured on an app. For instance, a client may inform us that they are planning to merge with another firm. If so, we tell the client that we need to disclose this to the insurer. We stress to clients that our efforts to maintain credibility with the markets is really to their benefit. The trust that it builds ultimately may allow us to get things done for the client that a less forthcoming agent would be unable to accomplish. When dealing with large accounts, I try to have underwriters meet with clients. Some agents may fear they could lose control over an account this way, but I find such meetings to be entirely beneficial-chiefly because they help build trust on both sides, which is invaluable if problems later arise.

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

Such concern is understandable. Unlike general liability policies, architects and engineers professional liability policies are frequently called upon to provide coverage. Most of our large firms are involved in some sort of allegation, lawsuit or claim on an annual basis. Some of these actions may come to nothing; others could result in serious losses. The point is, these policies are used. Therefore, it's vital that there be a high degree of trust between a design professional and the insurer's staff-particularly the claims people.

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

Special Reports /

Selling to Large Design Firms

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