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Chief Underwriting Officer, North America Design Professional , AXA XL

Until recent events brought businesses to a sudden halt, North American economies were growing, and the construction and design industries were booming. Despite the disruption induced by the pandemic, there is optimism that growth will continue over the long term once the threats of transmission and infection subside.

Focusing on the preceding economic growth, it goes without saying that A&E firms need to capitalize on opportunities and grow their businesses. A boom in business, however, can be a double-edged sword. As design professionals take on more projects, they may also take on an increase in risk – sometimes more (or at a faster pace) than their risk mitigation protocols were designed to handle.

The key to long-term success lies in the ability to balance both the opportunities and risks that come with growth. An important step in controlling risk is identifying the processes or procedures that tend to suffer as project demands rise – increasing the likelihood of errors and E&O claims – and buttressing those vulnerabilities with targeted loss prevention and risk management resources.

Drawing on 50 years’ worth of claims data, our AXA XL Design Professional team have identified several key areas of risk exposure – or as we call them, risk drivers – that are often the root cause of a design professional claim. In consideration of the ongoing changes in our current working environment, it’s clear in our analysis that the drivers of risk, what’s driving claims activity among architects, engineers and other design professionals, shifts over the cycles. It’s important that design firms identify these risk trends and address them accordingly. Here are three specific risk drivers in which we have seen recent upticks as key contributors to claims:

Communication Breakdowns
On any given project, design firms work with project owners, contractors and subcontractors, vendors and consultants. Any time there is a change in plans – regarding staffing, timeline, budget, design, workflow etc. – all those stakeholders need to be informed and thoroughly understand how the change impacts their role in the project.

Design firms often have methods for communicating such changes that, under normal circumstances, keep everyone on the same page. But when demand shoots up and new projects come in, firms can find their communications capabilities, and that of the various stake holders, stretched thin.

Our claims data suggests that almost 30% of non-technical risk driver claim dollars can be attributed to communication related issues.

Our claims data suggests that almost 30% of non-technical risk driver claim dollars can be attributed to communication related issues. The highest percentage of communication issues is the result of a “lack of procedures to identify conflicts, omissions and errors.” This could be expanded to include opportunities where strengthened quality control procedures, incorporation of more robust contingency plans and/or risk management plans into the project management process may have reduced the causation of loss. In other words, many claims can be traced back to a lack of specificity or consistency in the way that changes or developing problems are communicated, which inevitably leads to a missed opportunity to address and resolve percolating issues early on. 

Communication transcends verbal interactions of course. Recent upticks in claims have been linked to a lack of thorough and specific project documentation, which remains of critical importance. In other cases, contracts fail to specify scope of services consistently across projects, which leads to confusion in roles and responsibilities and ultimately failed expectations.

Diminished Project Team Capabilities
The preceding economic growth has also identified an increased need for experienced, skilled labor and intellectual resources. This issue is pervasive across the design and construction market sectors. Obviously, any large economic shift (downturn or growth period) will require adjustment in how firms identify, onboard or retain talented staff. 

During the recession of 2008, for example, many professionals in both design and construction were forced out of the field and sought opportunities in other industries. When the economy recovered, not all those professionals returned. Cultivating and mentoring new talent became more difficult with fewer veterans on staff, and today architect and engineering design firms continue to see the perpetuation cycle continue as Baby Boomers prepare to retire. 

Leading into 2020, both construction and design firms were reporting a simultaneous uptick in business and shortage of qualified staff. The lack of experienced design staff, project managers, laborers, and craftsmen create issues on projects. Generally speaking, our claims data suggests an increase in construction errors which may be traced back to specific staffing related issues, underscoring the need for qualified and experienced design and project management personnel. Regardless of whether a project issue was driven by a design flaw or a construction defect, it can not only result in costly claims, but deal a serious blow to reputation that can cost future business opportunities as well. 

Poor Client Selection
To this point we have discussed issues related to the design or construction firm’s practices. But picking the right customers whose projects fit your firm’s expertise is critical for sustainable growth. Though it may be tempting to take on different types or sizes of jobs, branching into unfamiliar territory introduces more opportunities for things to go off track. 

That’s especially true when clients have less experience with construction projects. 

Compare a regional school board to a larger repeat client. School districts typically have stricter budgets and engage in renovations or capital improvement far less often. Their priorities and their knowledge of the construction process will be vastly different from the priorities and knowledge of a larger repeat client that engages in that process all the time. 

That’s not to say that architects and engineers should steer clear of less experienced clients or new project types, but they should adhere to their go/no go process, be prepared to assign experienced staff to the project, spend more time explaining processes and clarifying expectations, and ensuring that sound contractual language has been obtained.

How to Reduce Your Exposure
A firm will obviously realize a return on their loss prevention efforts if they focus on their most common claim driver(s), and implement action plans specific to those issues. Only when you understand the root cause of a loss can you make real progress in minimizing or eliminating it. 

That’s where data comes in. 

We constantly analyze claims data – tracking various characteristics and aggregating it with external information obtained from customers and brokers to obtain a more complete picture of how a firm operates and how claims manifest. This allows us to identify trends and risk drivers as they emerge, so design professionals can see in real time where their exposures might be increasing.

Once a firm identifies its weak links, it can create targeted plans to strengthen them. We help with that, too. 

Through the AXA XL EDGE, our industry leading learning management platform for design professionals, architecture and engineering firms can access workshops, self-study courses, and other educational materials to help them improve their risk mitigation and loss prevention practices. 

If inconsistent or ambiguous contracts are causing confusion and delays, for example, our online Contract Guide is available that explains legal concepts, outlines best practices and provides examples of proper wording. 

If poor communication or project management issues need to be addressed, webinars and e-learning modules covering those specific issues are available to help firms gain more control over their processes to support successful project outcomes. 

All of these materials are accessible 24/7, from any device, so that firms can pursue learning opportunities where and when they want to. Educational materials and new data insights are communicated frequently via e-trends and newsletters, to ensure firms aren’t missing out on the latest information. And a wide range of in-firm workshops and claims case studies are also available to customers. 

Utilization of Learning Resources Pays Off
Last year alone, AXA XL Design Professional processed over 50,000 hours of education for clients. So far this year over 17,400 design professionals have completed one of our risk management programs by attending one of the 53 webinars conducted, or by using the AXA XL EDGE learning management platform. More than 50,000 insured individuals also subscribe to Communiqué, a monthly practice management newsletter for design professionals. The AIA has even listed AXA XL’s Design Professional unit as one of their top 10 providers of awarded learning units!

Our data confirms that, over time, increased levels of engagement with loss prevention education resources has been correlated with reduced claim frequency. 

When design firms use data-driven insights to create specific risk improvement strategies and execute those plans with the help of best-in-class resources, they can cut down on errors and avoid the financial loss and reputational damage that come with them. Whatever changes the future may bring, strong risk management remains foundational key of sustainable success.


About the Author
Douglas A. Strong is Chief Underwriting Officer on AXA XL’s North American Design Professional team. He can be reached at Doug.Strong@axaxl.com.

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Global Asset Protection Services, LLC, and its affiliates (“AXA XL Risk Consulting”) provides risk assessment reports and other loss prevention services, as requested. This document shall not be construed as indicating the existence or availability under any policy of coverage for any particular type of loss or damage. AXA XL Risk. We specifically disclaim any warranty or representation that compliance with any advice or recommendation in any publication will make a facility or operation safe or healthful, or put it in compliance with any standard, code, law, rule or regulation. Save where expressly agreed in writing, AXA XL Risk Consulting and its related and affiliated companies disclaim all liability for loss or damage suffered by any party arising out of or in connection with this publication, including indirect or consequential loss or damage, howsoever arising. Any party who chooses to rely in any way on the contents of this document does so at their own risk.

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