To Hire or Not To Hire?
Raise your hand if you were thinking of hiring someone this time last year. Had I posed this question to a group of business owners in April 2011, I am confident not too many hands would have gone up. The following two questions may still be farfetched, but if the tide begins turn and the project light-switch flicks up it’s worth asking both:
- When will your firm begin hiring?
- Will errors and omissions liability affect your hiring decision?
You may be thinking that errors and omissions liability has nothing to do with a hiring decision. Are you sure? Most business owners understand the importance of balancing risk for the potential reward. The term “reward” probably seems distant, but many design and engineering firms have multiple projects that have long been in a perpetual “waiting” mode. Your office could get busy very quickly should these projects become active within a few months of each other, and as new projects come in the door. Yes, this will be a happy day!
However, many business owners have depleted their retirement savings in order to keep the lights on and doors open over the past three years. It will be very tempting to replenish the bank account when the economy improves. The risk management pendulum could swing quickly from “low risk / low reward” to “high reward without considering risk”. This move would be understandably tempting, but I urge you to take a closer look beforehand.
Here is the errors and omissions liability tie-in to the new hiring decision process:
Every professional liability renewal begins with the completion of an application. Each application requires the business owner to state (1) number of employees and (2) annual revenue. Underwriters may be concerned if an application shows increasing revenue with no additional professionals being hired to accommodate the growth. Underwriters are worried about documents flying out the door without adequate management or peer review, which increases the likelihood of potential claims.
Replenishing the bank account is obviously very important, as well, and hopefully that time will come soon. When your firm’s work load reaches the point that increasing your staff is up for consideration, reduced liability exposure should be included to the plus column. Dealing with the cost of a claim, deductible payment and a higher premium, would be a financial setback during a time of recovery
For more information how to best protect the financial interest of your firm, please contact Reno Caldwell of IOA Insurance Services. IOA is the exclusive broker of CSPE’s endorsed professional liability insurance program.
Reno Caldwell, V.P.
Direct: (925) 660-3513
This newsletter originally appeared in the April 2012 issue of CSPE Online, The Official Newsletter of the California Society of Professional Engineers.