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Small firm prof. liab. ins. and overhead
7

Small firm prof. liab. ins. and overhead

Small firm prof. liab. ins. and overhead

(OP)
First the info,

Small structural engineering firm, mostly residential and some small commercial work, with less than $200,000 in gross revenue per year.

With that said, from your experience what would be the expected premium for a Professional Liability Insurance policy?  

Second question, what companies do you use and are happy with.  I would love a few names/contact info.

Thanks for your help.  I am just finding it necessary to go out on my own and need a better understanding of the associated costs.

Thanks.

RE: Small firm prof. liab. ins. and overhead

AZPE

I have not been required to have professional liability, only general liability and that one runs me $800/yr.  

I got a very nice general ;iability policy through Mercury Insurance and am very pleased with them.  

Greg Lamberson, BS, MBA
Consultant - Upstream Energy
Website: www.oil-gas-consulting.com

RE: Small firm prof. liab. ins. and overhead

Greg,

If you don't ind me asking why don't you carry liability.

I am looking at insurance myself and would be very interested to find out the why/why not to make a decision for what I will do.

RE: Small firm prof. liab. ins. and overhead

(OP)
Okay,

I don't mean to be rude, but this is not a post debating the need for it or not, I have already determined my needs, now I am looking at the Benjamins, $$$.  I know that a general and professional policy will be needed so I thank you for the general information, now does anyone have info on the professional for the type of business described?

Any info would be appreciated.

Also, if any of you have started the exact same company, I would love to pick your brain through email or maybe a phone call or two or three and I'll send you a gift card to Applebee's or something since the likelyhood of me being able to take you out to lunch would be slim to none unless you are in the greater Phoenix area...

Thanks in advance...

RE: Small firm prof. liab. ins. and overhead

Not to be rude, but have you checked with your local Mercury agent?  They issue liability policies (all kinds of them) for small businesses.  That's what was implied above, but I'll spell it out - check with Mercury.

Greg Lamberson, BS, MBA
Consultant - Upstream Energy
Website: www.oil-gas-consulting.com

RE: Small firm prof. liab. ins. and overhead

AZPE,

I think your premium will be largely dictated by your history and your location as well as the type of work you do.

Best option is to get a couple of quotes for your specific situation.

csd

RE: Small firm prof. liab. ins. and overhead

JamesBarlow

I'm not required to approve or sign off on designs or drawings.  The most my clients have required to date is General Liability.

The Risk Manager for a major EPC contractor I do quite a bit of work for put me on to Mercury to provide cost effective liability policies for individuals and small businesses.  I have been extremely pleased with them so far.  Of course, allot depends on the local agent/rep and I an fortunate to have a very good one.

Greg Lamberson, BS, MBA
Consultant - Upstream Energy
Website: www.oil-gas-consulting.com

RE: Small firm prof. liab. ins. and overhead

Try Liberty Mutual and XL Environmental for Professional liability insurance.  ASCE also has a professional liability policy for small firms.  For $200,000 of billings, I would not be surprised if your annual premium is about $8,000 to $10,000 for $1,000,000 aggregate coverage.

RE: Small firm prof. liab. ins. and overhead

(OP)
Thank  you all so much.  I have contacted XL and will fill out the app. tonight.  It looks to me like they would be my best bet.  I tried to wrestle a guess out of the agent and she said the same thing as PEinc, she can't imagine it being over $10k/yr.

On the same note, is there anything when you started out that you completely underestimated as far as time or money or resources that you wouldn't mind sharing?

Thanks for all the responses.

RE: Small firm prof. liab. ins. and overhead

If you are starting out by yourself, you need to stay focused.  It's too easy to sit in your office and surf the net.  Remember, that does not pay the bills.  You need to be highly visible and let potential clients know you are available.  I also sent out a letter to everyone listed in my Rolodex.  It gave them my contact information and listed the types of services I could provide to them.  Also, set up a separate bank account and checking account for business use only.  Set up a few credit accounts with some local companbies such as a printer and office supply.  Make sure you pay them timely.  You may need credit references in the near future.

RE: Small firm prof. liab. ins. and overhead

(OP)
Thank you PEinc, all very helpful.

If anyone else has additional info, I am open to everything.

Thanks.

RE: Small firm prof. liab. ins. and overhead

AZPE,

Since your handle is almost identical to mine, I figured I had to respond...  I am also in the Phoenix area.  I started my firm about a year ago and my first year's prof liability premiums were arround $3500.  I use an agent that specializes in architects, engineers, and other professional's insurance, and am very happy with him.  My policy is through XL - $1M/$1M coverage.  I also have a general liability policy which runs about $500/yr.  If you are doing inspections, site visits, etc, you will also need to carry vehicle insurance.  I just use my own personal car insurance...

Would be happy to give you my insurance agent's contact info if you want it.  It's nice working with a local agent who is knowlegable about our industry specific needs.

I think the one thing I underestimated the most was coming up with my own standard details, specifications, letterhead, invoice, etc, etc.

RE: Small firm prof. liab. ins. and overhead

Very good advice from Peinc. The biggest problem I have is cash flow and credit ratings really count.

Things are industry specific but our projects are typically one to two months payment terms are between 60-120 days after completion and that rolls on to month end so you can easily be looking at 6 months to get monies in. That can really hurt in the early days or when expanding taking on extra staff, new offices etc.

RE: Small firm prof. liab. ins. and overhead

Six months to collect money????????  You need new clients.  My usual terms are "payment due in 15 days from date of invoice."  Only a few have ever paid that fast.  Contingency payment terms are not acceptable.  Most clients pay me in 30 to 45 days from invoice date.  I don't bug the client until 1 month after the invoice date.  Then I send a statement to their accounting department and call my contact for whom I designed the job.  I tell my contact that he or she gets a pay check every week or two; I need to get one also.  I tell them that my invoice represents mostly labor and expensive PL insurance.  I also try to send out the invoice as soon as the design submission is sent to the client.  I try not to wait until the end of the month to send invoices.  That only delays the payment further.

RE: Small firm prof. liab. ins. and overhead

Not really PEinc 60-90 days is the norm for the UK at least in Automotive. Occasionally you get 30 days which is what we state on any quotes but 120 days is not uncommon. We do always invoice ASAP but many companies seem to pay on a certain day so as in the same way as credit cards are billed you can gain nearly a month, sorry the month end was misleading.

We have spoken to a lawyer about this and the order from the client is the legally binding contract so it does not matter what you put on your quote, this again maybe specific to the UK. We now have a series of letters we send out, you have to send three before taking court action and they have to be seven days apart. We have not had to take anyone to court yet but this does in effect give an extra month “free credit” to the client.

I would love to be in your situation where 30 days is seen as a long time, sadly it is not the case at least here in the UK. This still remains about the biggest unforeseen issue we face.

RE: Small firm prof. liab. ins. and overhead

5
First of all; best of luck with your new venture.  I started a structural firm 19 years ago; no partners, no financing, wife and 3 kids.  It has been good.  There have been some bad times but overall I am very happy.  Anyway, best of luck.

You had mentioned about expenses; I will share with you some of my experiences.
-Do not estimate your expenses based upon residential fees for phone, internet, elec., gas, etc.  Everything will be 2 to 2 1/2 times higher in addition to higher deposits.

-There will be hidden costs that you will find out about that you may have not had any idea existed; be ready for the unexpected.

-Pro liability insurance usualliy costs me about $16k a year with $500,000+ in billings (we are a small firm).
It was under 10k a year when the billings were less so your agents suggestion that it would be under 10k is probably relatively accurate.  I went bare for about 5 years before I could buy insurance.

-One thing to keep in mind about pro liability is the very high deductibles you can incurr.  I would suggest that you define "what" type of claim you are trying to insure against.  For example; if you are doing residential designs and the whole value of the house is under 500k you may not need a million dollar policy.  Some people will argue that you want to insure against a major collapse but the reality is you can't buy enough insurance for a disaster.
Maybe the worst that would happen is a deflecting ceiling and it needs to be strengthed; surely it wouldn't cost a million on a small home.  This is just something for you to think about; not trying to convince you.

-Will you have employees?  If so, do you plan on providing health insurance?  Even if it is just you then health insurance can be a very costly item depending on your age. This can be a tremendous overhead item.
Also, you will be paying unemployment insurance premiums to the state.

-Receivables can be one of your biggest headaches.  Choose your clients carefully.  When you get a client that is slow paying you will need to become aggresive which can be hard to do.  This client may be one of your biggest clients and gives you a lot of work; it can be a very fine balancing act.

-You can get all of the free work you want.  You will be asked by individuals and friends to provide engineering services and generally they are wanting a free ride.
I have them come up to me during church and start telling me about their issues.  I politely tell them that I will be glad to help them if they come by my office on Monday.
This way we can get some preliminary ideas together and I can give them an estimate of the costs invovled.  Some of them will give you a silly look but the individuals who respect you will make an appointment and will expect to pay you.  Remember, you can get all the free work you want.

-If you work in other states and you are a corporation you will need to form a corp in the other states also; figure about $200/year for fees and registered agents.
Also, you will be required to have a certificate of authority from the engineering boards; figure another $200 a year.  I have an "S" corporation but if I did it again I would form an LLC (which was not available at the time I set up a company).
An  LLC is simpler and cheaper to set up.

-What are planning on doing about accounting?  I was so busy doing engineering work there was no way I could learn all of the corporation tax laws, filing of quarterly and monthly reports, depreciation schedules, etc.
I would suggest getting a CPA that will handle your business needs as one of your priorities.  It can get very complicated and very, very time consuming.  If you try to pay your own bills and do your accounting you can figure at least one day lost every week.  If you aren't producing engineering you aren't billing.  
Accounting fees for a small firm will run about $300/month plus your end of year taxes.

-Who is going to do your billings?  This can be time consuming; same as reviewing contracts, etc.

-Believe it or not, it will be very difficult for you to handle billings, reciveables, contracts, accounting.
Relieve yourself of the difficult items such as accounting.
This will even be more important as you gain employees.

-In 19 years of owning my firm I found early on that my expenses were 50 to 55% of my gross income.  Note that I did not say "billings" but your actual gross.
If you gross $200k you can reasonably expect to have a personal gross of $100k.  This was my experience with minimal travel expense.

-I hope some of these thoughts give you something to ponder.

Sincerely,

Randy


RE: Small firm prof. liab. ins. and overhead

Excellent, RHB51.  Our experiences are dead on.

RE: Small firm prof. liab. ins. and overhead

(OP)
Thank you RHB51, it has been very helpful/insightful.  Thank you all for your input and experience.  If there are any others that wouldn't mind shedding even more light on the subject I would be very grateful.

Thanks again...

RE: Small firm prof. liab. ins. and overhead

AZPE-

I am in a similar business situation to the one you posted.  I have 1mil with CNA/Schinnerer and pay about $9k per year.  That is based on an estimated revenue of about $115k.  The benefit of this plan is that I can lock into a 3-year fixed price at each renewal.  Since my business is growing, my insurance fee stays fixed based on revenues the year prior to my last renewal.

My agent did price 3-4 different carriers.  This one was the most expensive by 10%-20%.  But with the 3-year lock, it ends up being comparable in year 2 and 3.  My next renewal in 2009 is going to be brutal.  Also, it seems better to find a carrier and stick with them.

RE: Small firm prof. liab. ins. and overhead

An expense that is escaping comment;Even if you have started your small business with sufficient money, you have to wait for the customers orders, and the payment (most probably the payment is few months later than the billing date). This means when you start your business, for example first of january, the time between -you have found the custtomer, you have manufactured or prepaired the goods/service, you have  delivered them, and you got the payment (depending on your job but there is a time almost few months between the billing date and the date you got the payment). Finally it's first of july, you have earned the money. You need enough capital to survive for 6 months.
And a question for RHB51, for marketing your service, what was  your strategy in the beginnig? It plays a vital role for the business and we engineers usually  not good at this subject.

RE: Small firm prof. liab. ins. and overhead

Dear hfyavuz;

I was fortunate that I knew 2 contractors that would need my services.  I made 2 phone calls and picked up 3 projects.
They had known me previously.  I have a specialty structural firm that specializes in concrete hi-rise formwork, shoring and reshoring.  Very few engineers do what I do as an independent engineer so the demand is great.

When I started getting more clients (which were all word-of-mouth) I always did the very best I could.

I wish I had a magic potion for you but I never had to market myself.

There is one thing I would say to new clients though and they would drop out of the chairs when I said it;
"If you are not happy with my work do not pay me".
I was never taken up on the offer.  

They had never had anyone stand behind their work 100%.
They did not know me other than by recommendations and everyone of them used my services many times.

RHB51

RE: Small firm prof. liab. ins. and overhead

My firm does civil, mechanical and electrical design working mostly with architects and land developers.  Our E & O policy runs us about $16,855.00/year-includes previous project coverage our old company projects (my mechanical/civil company merged with an electrical firm).  Our policy is with Traveler's.  Two years ago, our merger took place in Oct. 2002, we were with DPIC with an annual premium of $33,000.00.

RE: Small firm prof. liab. ins. and overhead

For Oil and Gas, in Canada, it starts at about $15,000 per year for a typical Professional Liability Insurance (or sometimes also called Errors and Omissions liability). This is NOT "General Liability" - which goes for about $250 per year.

I am not sure what the value of coverage is - I think it was around $20 Million (but this is from memory). I decided that I didn't need it at that price.

"Do not worry about your problems with mathematics, I assure you mine are far greater."   
Albert Einstein
Have you read FAQ731-376: Eng-Tips.com Forum Policies to make the best use of Eng-Tips Forums?

RE: Small firm prof. liab. ins. and overhead

Oh, the Professional Liability Insurance was from Aon.

The general liability was from State Farm.

"Do not worry about your problems with mathematics, I assure you mine are far greater."   
Albert Einstein
Have you read FAQ731-376: Eng-Tips.com Forum Policies to make the best use of Eng-Tips Forums?

RE: Small firm prof. liab. ins. and overhead

(OP)
I forgot to post after I figured out what to do.  I did end up going with XL, thank you again for the referal.  The policy, with a $0 deductible was $4,349/yr and if I take their liability education course, they will refund me $435 (10%).  Also, at the end of 1 year, if I incorporate a Limitation of Liability clause into contracts, they would reissue the policy with an additional 15% reduction in premium.  I will have to look a little more into the LOL clause and what that implies to me and to my clients, but that is just more money saved, and the rate seems very reasonable.

Again, thank you to all of you for your help.

RE: Small firm prof. liab. ins. and overhead

What is you coverage limit?  Don't forget that your premium will rise each year as your billings rise, even without any claims.

RE: Small firm prof. liab. ins. and overhead

(OP)
$1,000,000/$1,000,000 and yes, I know that as billings rise, so will the premium, insurance wouldn't be called a racket if it didn't!

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