Reported Claims Per 100 Firms
50
HOW FREQUENCY VARIES This graph shows that the average number of claims per 100 firms insured through the Victor program peaked in 1983 during a time of high inflation. The interaction of many factors seemed to lead to the increase. But one factor seems clear: when the construction economy was vigorous and client demands led to constraints on the time allocated for design, claims followed. Reported claims should be expected to track with construction volume.
40
30
20
10
0
HOW CLAIMS RELATE TO BILLINGS
Claims Frequency per $10 Million Gross Billings
Larger firms have more claims than smaller firms. That is obvious simply because of the scale of operations and the number and size of projects. But when the frequency of claims was adjusted to a fixed-dollar basis of billings, small firms were far more likely, per dollar of revenue, to have a claim. Part of this difference was likely caused by a difference in deductible obligations. Some larger firms may not have reported disputes as claims if they sensed that the dispute could be resolved without insurer involvement. WHAT CLAIMS COST All disputes cost firms in lost productivity, internal costs, and professional reputation. When claims result in payment on behalf of a policyholder, the dollar costs are significant. Even for smaller firms, the average paid claim, including legal defense costs and the amount to correct harm caused by the firm’s negligence, was over $167,000 from 2015 through 2019. The average larger firm claim cost almost $494,000 over that same span.
$5 million and below annual billings Above $5 million annual billings
2.5 3.0
2.0
1.5
1.0
.5
0
2015
2016
2017
2018 2019
Average Defense Costs and Indemnity Payments
$5 million and below annual billings Above $5 million annual billings
$0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000
2015
2016
2017
2018
2019
8 • From Risk to Profit - Benchmarking and Claims Studies
Victor
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