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Since 2001, our Design Professional team has been studying the non-technical (as well as the technical, of course) factors that lead to claims against our policyholders. The latest iteration of our Risk Drivers research has examined approximately 1,000 closed claims from 2015 – 2019 with a payout under the policy for loss or expense. For an overview of the study’s results, we turned to Randy Lewis, Vice President, Loss Prevention & Client Education for AXA XL.

Communiqué : Please explain what you mean by non-technical risk drivers.
Randy Lewis: Non-technical risk drivers are those breakdowns in practice management processes, such as construction phase services, that contribute to conditions, errors, omissions, and disputes that lead to claims. You could view these as “setting the stage” for the making of a claim.

C: What’s a quick example of construction phase services as a driver of claims?
RL: You might discover that the root cause of a claim was neglecting to indicate improperly installed windows in a written report after a site visit.

C: What are the top non-technical risk drivers?
RL: Communications still tops the list of our six risk drivers, representing 40 percent of the claims we studied. That’s more than twice the number of claims attributed to the second-leading risk driver, client selection.  [See Figure 1]

C: Was that a surprise?
RL: It wasn’t a surprise that communication leads the rest, but we were disappointed to find that its share had risen to 40 percent from 32 percent in just five years. Most likely, this means that design professionals are continuing to underestimate the critical role played by the way they communicate, whether it’s failing to set clear procedures to mitigate errors and omissions in their work or clearly explain the scope of services to a client and confirm the client’s understanding.

C: The study breaks down each non-technical risk driver into several elements. For instance, within the second-leading driver, client selection, the most prevalent cause of claims is having a client inexperienced in project and design issues.  [See Figure 2]
RL: Saying to policyholders, “You need to improve your client selection practices,” isn’t enough; we want to provide them with data they can use to focus their efforts. Nearly every design professional has dealt with an inexperienced client and knows what that can lead to—more hours than anticipated in the design fee because of having to hold the client’s hand, repeatedly explain processes, and wait for days for the client to decide, to name a few. The client’s inexperience can lead to claims in which it’s alleged that the reason for a substitution wasn’t clearly explained, or the contract’s scope of services was unclear.

Mitigating client selection risk begins with a firm’s business development practices.

C: How can design professionals use the data to improve client selection?
RL:  Mitigating client selection risk begins with a firm’s business development practices. What projects are we pursuing and who are the individual clients for these projects? What is their level of experience? Also, do we have an experienced project manager and team available to fully guide the process? The right questions should provide you with a pretty good picture of whether you want to work with this particular client. If you do work with them, you’ll be able to set an appropriate fee and schedule that will allow you to provide more experienced staff and plan for the higher risk associated with this client type.

C: Project team capabilities has climbed from the fourth- to the third-leading non-technical risk driver, yet the percentage of claims represented by this driver has decreased.  [See Figure 3]
RL:  That’s right and it’s due to the severity of the claims attributed to this driver. Severity more than doubled from the previous five-year period to the period 2015 – 2019.

C: What’s the leading cause within this driver?
RL: There’s no clear leader, but let’s look at assigning unqualified or deficient design staff to a project. This element represents 28 percent of the claims attributed to this driver. Assigning someone without the right experience or skills to a project isn’t the problem— after all, how are they ever going to get the necessary experience or skills? You should never do it without pairing that person with someone much more experienced. Other strategies you might use are embracing your firm’s project start-up processes, so no step is missed, and having more frequent project team check-ins, which will also help the inexperienced person gain more confidence.

C: How can policyholders learn more about this latest research into non-technical risk drivers and mitigation strategies?
RL:  While there are several ways our insureds can gain all the benefits of the Risk Drivers program, the best way is to contact their agent or broker and request that the program be presented to their organizations.