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Geotechnical engineers and multiresidential architects and engineers are among sectors that can present particular challenges to underwriters who provide errors and omissions coverage.
The primary responsibility of geotechnical engineers, also known as soil engineers, is to take samples of soil at proposed construction sites, determine whether the characteristics are suitable for the proposed building and then prepare a report, said Richard Hartman, vp, architects and engineers professional liability for the Arch Insurance Group Inc. in New York.
But “it's a very inexact science,” said Mr. Hartman. A building with a huge footprint, for instance, may involve just five or six soil samples or borings.
“It's an extremely difficult” proposition because the soil's condition can vary from one foot to the next, so “coming up with an exact classification of soils in one site is challenging,” he said.
Problems stemming from an incorrect report can require significant repair or a “total teardown” or even abandonment.
Compounding the problem, Mr. Hartman said, is that the fees charged for these services are very low “and as an underwriter, that's what we base our premiums on. So therefore we really can't generate a premium that's truly commensurate with the exposure.”
This disproportionate fee-to-exposure ratio creates an “underwriting challenge for most insurance companies,” he said.
On the plus side, geotechnical engineers “are very prudent in reporting potential problems.”
Insurers also stress to geotechnical engineers that the sooner insurers become involved, “the better opportunity we have to come out with a successful resolution and mitigation” of the problem, Mr. Hartman said.
Also challenging is coverage for architects and heating, ventilation and air-conditioning engineers in multiresidential facilities, which also generate low-frequency, high-severity claims and have a disproportionate fee-to-exposure ratio, he said.
Because designers often repeat three or four models throughout a major project, a design flaw can result in a catastrophic, “or certainly very severe claim, because the error's going to be repeated in each...those models,” he said.
Mr. Hartman said the best approach for these professionals is to explain to their insurers “why they are better than their peer firms,” what they do differently from a risk management perspective, how they select clients and the risk mitigation in their contracts including how they ensure their clients' financial viability.
Errors and omissions risks once characterized as hard to place now are merely challenging due to ongoing soft pricing, many observers say.