We are delighted to invite Graeme Hay back to The Design Coach to help us uncover some of the mysteries surrounding insurance. 2020 has taught us many things about business, most notably the importance of reducing risk. In our interview this week, we asked Graeme to share with us his thoughts on how designers can protect their businesses during an economic downturn.
We all know we should have insurance, but for many of us, we don’t really know why. If you’re like most small business operators, it’s easier to avoid the topic all together, which usually means leaving yourself exposed by being totally uninsured.
In the lead up to the Seminar Session this month, we interviewed Graeme to find out why it’s vital for design professionals to have insurance, what types of insurance are suitable and, importantly, what is generally covered by insurance and what isn’t.
Find out more about our upcoming Seminar Session with Graeme HERE.
TDC: Thank you for joining The Design Coach community once again Graeme! Our members enjoyed the Seminar Session last year and are keen to talk 'all things insurance' with you again. Most of us have avoided this issue for so long that we may have forgotten why we need insurance. Can you help us understand why it’s so important?
GH: It's my pleasure Andrew and thank you for holding another Seminar Session this year.
At the core of it, insurance is there to protect businesses from the financial impact of risks associated with their activities. It allows a business to carry out its work, safe in the knowledge that there is a ‘safety net’ should an unforeseen negative event occur. That said, there are other reasons that insurance may be necessary such as contractual obligations.
TDC: We are interested in understanding how the events of 2020 may have affected Designers, and more importantly, how we can advise that they protect themselves for the future.
Can you suggest how we can better protect ourselves during times of economic uncertainty?
GH: Our advice is to firstly take a step back from day to day business and think about the risk exposures that designers face as they manage their design businesses. Even a simple thing like writing their Top 10 risk concerns down and then evaluating the business processes they have in place to manage these risks. This can allow designers also to plan for some of the ‘business building’ initiatives to help them improve their processes and grow their business.
TDC: Aside from Bill Gates, nobody could foresee the events of 2020. Is it possible to protect our businesses from a future global pandemic, like the one we are currently experiencing?
GH: I think that it’s very unlikely that we’ll see insurers being willing to offer coverage, so our advice is for businesses (including small businesses) to consider the options they have to be able to make plans to continue operations.
Whilst the broader economic environment and government restrictions mean that some aspects of pandemic risk are outside of the control of the designers there may be ways of continuing aspects of design business through technology, remote consultancy or similar initiatives.
Whilst it may not be as effective as ‘in person / on-site’ work it may be a way of keeping business moving forward during difficult times.
TDC: Many of our members operate their own businesses, or are planning to in the near future. What sort of insurance do you recommend for self-employed designers?
GH: There are a variety of insurances that should be considered depending on your business, its activities and the scope and scale of these activities. Minimum requirements for most design businesses would be Public and Products Liability and Professional Indemnity. These policies provide cover for claims against the designer for negligence, errors or omissions arising from their activities. Beyond these policies there are other types to consider such as Property Insurance (sometimes referred to as Business insurance) to cover the designer’s own property (e.g. office equipment and other contents) and we’re seeing growing uptake of Cyber insurance to cover unauthorised network access which is a growing concern amongst small and medium sized businesses.
TDC: What sort of things are covered by Professional Indemnity and Public and Products Liability insurance?
GH: Professional Indemnity insurance will cover negligent errors and omissions in a designer’s work that lead to a claim against them for financial loss. The extent of coverage will depend to some extent on how broadly defined the design services are. For example, this could be as simple as ‘interior design services’ through to ‘interior design, project management, procurement and drafting’. It really depends on the scope of a designer’s activities as to what will be described to insurers and therefore what is covered. An important aspect of coverage is that legal defence costs will ordinarily be covered so there is a first line of defence for designers if allegations of negligence are made against them.
Public and Products Liability follows a similar principal to the above in terms of breadth of coverage but is there to protect against claims from third parties for bodily injury or property damage arising from the designer’s business activities. This is probably the most commonly required type of insurance for most businesses and again, coverage is provided for legal defence costs associated with any claim made.
TDC: Okay, so we now have a snapshot of what is covered but it’s just as important to find out what is NOT typically covered by PI and PL insurance. Can you talk us through some of these exclusions?
GH: All insurance policies vary and the associated terms, conditions and exclusions that exist within policies. A few key areas excluded from coverage include:
Wilful or criminal acts;
Contractual liabilities (i.e. that wouldn’t have existed in the absence of the contract);
Asbestos (generally totally excluded unless specific asbestos liability insurance is procured); and
TDC: Does Products Liability cover a designer for ordering the wrong piece of furniture?
GH: Products Liability Insurance covers designers for claims against the designer for bodily or property damage to others. Professional Indemnity Insurance would cover the designer in a situation described above, where a client ends up out of pocket and they choose to pursue legal action. However, a designer making a mistake in the ordering process and being out of pocket for this error is not otherwise covered by Professional Indemnity insurance.
TDC: What homework should a designer do before exploring insurance options?
GH: I think the key thing for most designers is to sit down and think about the risk exposures that they have in their business associated with the scope of design work they are conducting. A simple process could be used looking at:
Types of work being completed?
Are there contracts or terms and conditions in place that offer protection (or add risk)?
What environment are you working in? (e.g. residential work, commercial work)
What scale of projects are you involved with?
Are you sub-contracting any services to other parties (are they insured)?
Are you procuring products on behalf of clients?
You’ll find that a standard Professional Indemnity proposal form will ask for much of this information but I’m working at providing a simple Risk Assessment Checklist that designers can use to review their risks and I’ll share this with The Design Coach members at the Seminar Series.
TDC: This next question is for those of us thinking they’ve come this far without insurance and are happy to keep their head in the sand. What are the dangers of being underinsured or incorrectly insured?
GH: The main danger is being exposed to risks that, as a business, you cannot afford to retain or absorb. This may mean that for a particular project you end up being out of pocket having to fund losses that would be ordinarily insured (and not making a profit) or in the worst case it could be bad enough to put you out of business.
TDC: These are uncharted areas for a lot of our members and finding the right insurance broker is essential. Are there good and bad insurance companies out there?
GH: In Australia there are strict regulations around insurer solvency and behaviour which means that in principle there are no ‘bad’ insurers. In addition, rating agencies such as Standard and Poors or AM Best continuously monitor and report on insurer financial strength globally and rate individual insurers accordingly. That said, insurance companies operate in a competitive marketplace and as such their policy terms and conditions, pricing and claims procedures may differ from one to another. This can create a perception of ‘good’ and ‘bad’ insurers and most often we see this in claims processes and behaviours. Utilising the experience and skills of a good broker can help navigate this.
TDC: Graeme, can you please take a moment to explain what is the insurance broker’s role?
GH: The role of the broker, I believe primarily is an advisory role that goes beyond simply placing insurance coverage. A good broker will:
Help you identify and assess your risks;
Design an appropriate insurance solution in terms of policies, coverage, pricing and service;
Negotiate with a range of insurers best placed to give you the solution you need at the optimum pricing;
Where necessary assist with day to day queries, review of insurance clauses in contracts and the like; and
Advocate for you in the event of a claim to assist you in preparing the necessary documentation and negotiate the best outcome.
TDC: Do you have any advice as to what qualities a designer should look for in a broker?
GH: Beyond the practical aspects that I previously mentioned I believe that designers should consider a broker that can demonstrate that they have knowledge and experience of the risks that you, as a designer face. They should show a strong desire to want to know about your business so that they are able to develop a more in depth understanding of your services. This ensures they have the ability to tailor coverage to meet your unique business needs and also represent you in the best possible light when negotiating with insurers on your behalf.
TDC: What clauses should designers look out for in their insurance policies that might affect their coverage, due to Covid-19?
GH: Most insurers are now implementing specific exclusions which either refer to Covid-19 specifically or may appear as ‘Listed Human Disease Exclusions’. These preclude claims (pretty much of any kind) where they arise from or relate to diseases identified or listed in a state of emergency, public health emergency or pandemic declared by any governmental authority or identified by the World Health Organisation.
At this time there is little that can be done to have these sorts of clauses removed so its really more of a matter of awareness that insurance has some limitations. As an aside, it’s important to recognise any government directions issued as it relates to Covid-19 safety and conduct all business in accordance with these measures.
To learn more about insurance for designers and participate in a robust Q&A session with an industry expert, book your ticket via our website. Often the best questions come from your peers!
If you have any topics that you’d like covered by our Seminar Series, let us know by emailing firstname.lastname@example.org and we’ll make it happen!
Limited tickets for the Seminar Series: Insurance for Designers are available here.
Time & Location
Seminar Session: Insurance for Designers
Date: Thursday 22nd October 2020
Time: 4.00pm - 6.00pm
Location: Live online seminar
Cost: $60 (includes e-book summary and Risk Assessment Checklist)