Most engineers have never heard of Ed Howell, but Ed Howell has directly benefitted every engineer practicing in the U.S. today! So what did Ed do and how did he benefit the engineering profession?
Ed Howell invented risk management for the Design Profession. Ed's innovations helped reduce the frequency and severity of claims that were decimating the engineering profession.
In the 1960s litigation against engineers was rampant...coverage was difficult to get and even if you could get it, the cost was exorbitant. In walked Ed Howell, Ed formed a unique insurance company which for years was known as Design Professionals Insurance Company (DPIC) and today is known as XL Design Professionals (XLDP). What made DPIC unique was Ed's forward thinking approach on loss prevention. Ed figured that if you selected engineering firms that were interested in lowering their exposure to third party litigation and offered them education opportunities that they would have fewer claims. By hiring claims adjusters that only dealt with design professionals, potential claims could be resolved prior to becoming actual claims and those claims that did happen could be handled more efficiently which would lower severity. Lastly Ed handpicked insurance brokers that were expert in the risk management and insurance needs of engineers. Ed felt specialized expertise was critical in order to deliver the loss prevention message and coordinate the risk management efforts.
Ed came up with numerous innovations. I won't mention them all, but let me hit the highlights:
- Education Credits-DPIC not only invested a significant amount of money developing their Professional Liability Education Programs (PLEP), but they paid their policyholders (and still do) to participate. A firm receives a check for 10% of their annual premium if they participate in the PLEP programs. DPIC and XLDP have returned 10’s of millions of dollars to their policyholders in the last 40 years.
- Pre-Claims Counseling-Ed realized that the earlier problems were identified and resolved the less expensive it would be for everyone. Yet many people rightfully felt that if they even mentioned a potential claim to their insurance company that their rates would go up. Ed developed a unique benefit called “Pre-Claims Counseling .” If an insured became aware of a situation that they felt might give rise to a claim, they could turn it in as a “Loss Prevention” matter. The DPIC (XLDP) claims staff would work with the insured to resolve the matter before it became a claim and any money DPIC (XLDP) might spend did not count towards the insured’s deductible. Loss Prevention files did not effect underwriting (pricing) either.
- Mediation and Mediation Credits-Ed introduced mediation to the design profession. Ed realized it was a lot less expensive if the parties to a dispute resolved it themselves as opposed to utilizing some sort of adjudicatory process like arbitration or litigation. In order to encourage his insured’s to try mediation, he offered a mediation credit. Ed agreed to cut his clients deductible in half up to $25,000 if a dispute was resolved in mediation. 85% of the cases that went to mediation were resolved successfully!
- Limitation of Liability-The risks an Engineering firm faces are far greater than the fees they are paid. Recognizing this disparity Ed introduced a concept called Limitation of Liability. With this provision the engineering firm would limit it’s liability to it’s client. In the event of an error or omission the engineer would effectively cap it’s liability to it’s fee or some dollar amount specified in the contract. To encourage the use of this concept, Ed would credit his policyholders up to 15% of their premium if the provision was used.
- Proactive Contract Review-Ed realized that in the event of a claim, the contract between the engineer and the client would be critical. Yet most engineers were not schooled in contract review and were at a distinct disadvantage when negotiating contractual terms with their clients. DPIC proceeded to develop educational programs focused on contract review and they continue to publish the single best tool for design professionals when it comes to negotiating contracts the XLDP Contract Guide.
The cost of risk is a major expense for all engineering firms. If you can lower the frequency and severity of the claims that drive those costs, a firm will be more profitable. Engineering firms as well as other members of the design profession are much more proactive in managing risk today, than they were 40 years ago and a lot of that can be attributed to Ed Howell. Thanks Ed.*
*Ed Howell ran DPIC out of Monterey California and lived in the Monterey area until he died several years ago. Ed was funny, caring, innovative and brilliant.