In today’s world, risk is everywhere, and insurance plays a vital role safeguarding architects from the risks they face. It’s one of the keys to a comprehensive risk management strategy, providing peace of mind and protecting an architect’s business and reputation.

While many architects know they have risks and need insurance, that’s only one part of the picture. The best risk management programs are holistic, stepping back to take a broader look at the big picture. Ideally, your risks are minimized, your insurance is precisely tailored, and claims are few and far between. Here’s how it all works together to help architects control risk.

Risks Are Inherent

Everything we do comes with some risk. When you arrive at the office each morning, you don’t know how the day is going to turn out. There’s always the chance that something goes wrong — an unforeseen site condition is found, design instructions are misread, a contract term is breached. But what about all the things that will probably go right? All those successes are also due to the risks you take. Without them, nothing would ever get done.

Risks may always be present, but that isn’t always a negative. By taking certain risks, architects can grow their business, build new client relationships and create designs that benefit millions of people. It’s simply a matter of taking the right risks at the right time.

Not All Risks Are Equal

Despite the potential upside inherent in the day-to-day risks of running a business, most architects are probably more worried about possible downsides. It’s a concern that is not without reason. Architecture is a high-stakes profession, where professional mistakes can lead to multi-million-dollar losses. Even an unfounded claim can cost an architect five or six figures to defend against.

From a minor annoyance to costly litigation or apocalyptic disaster, the risks an architect faces will vary dramatically. Since not all risks are equal, the right response to a risk will also vary.

Evaluation of Risks

While all risks are unique, certain patterns do exist. Recognizing these patterns can make it easier to evaluate an architect’s potential vulnerabilities. For instance, two key variables to consider are the likelihood of a particular risk occurring and the expense you’ll face if it does. These variables work in combination:

• Likely but inexpensive
• Unlikely and inexpensive
• Likely and expensive
• Unlikely but expensive

On one hand, there are risks that architects are very likely to run into, but that don’t cost a lot of time or money to solve if they do come up. Other risks may be unlikely, but again, present a low risk financially. At the other end of the spectrum, some risks may be common and very expensive, while others may be less likely but just as costly if they end up happening. An architect can use different tools to deal with these differing risk profiles.

Control of Risks

Basic risk control is one of the first tools architects can use to tackle risk. While it’s easy to get overwhelmed with such a large combination of unknowns, a familiar piece of advice is instructive: Focus on what you can control, not on what you can’t.

Risk control doesn’t have to be complicated. The first steps often involve looking for easy wins and low-hanging fruit, the simple kinds of things that make a big difference. Best practices you’re already following are also worth considering, as in what things you’re doing right but could do more of.

Effective risk control also doesn’t have to be all or nothing. Turning a more likely risk into a less likely risk is an excellent start to minimizing your overall risk profile. Beyond easy fixes, architects can focus on risks that would be the most costly, starting with the more likely risks, then considering making changes to guard against expensive yet unlikely risks, where possible.

Management of Residual Risks

No matter how much risk control you implement, some risks will always remain. These leftovers are known as residual risks. In an industry like architecture, you can expect a good amount of residual risk which cannot be completely eliminated. Additional strategies are available to deal with these risks.

Mitigation of Residual Risks

Typically, risk management starts with the risks that can be completely eliminated, then moves to those that can be made less likely to occur, even if they can’t be prevented. When all of these safeguards are in place, it’s time to consider what you can do about the impact of the remaining risk you face. This is the basic concept of risk mitigation, where proactive steps are taken to lessen the cost or damage of a particular risk event that might occur.

Architects are often able to mitigate much of their risk with carefully worded contracts and thorough documentation of professional advice and activities. It’s like having a sprinkler system just in case there’s a fire. The sprinklers won’t prevent a fire from starting, but they may be able to keep it from burning down the whole building. In short, risks that can’t be eliminated are easier to accept when the exposure has been lowered to a more manageable level.

Transfer of Residual Risks

But what about when the risks that remain are still too big for an architect and their firm to handle? This is where the concept of risk transfer comes in. Transferring risk involves making a potential downside someone else’s responsibility. There are a few ways of doing this, but insurance is by far the most common.

Insurance allows an architect to transfer the potential financial burden of their residual risks. Both parties agree on the specific terms of such an arrangement, an insurance premium changes hands, and an insurer assumes the legal liability for a certain amount of risk under the pre-defined circumstances set down in the insurance policy.

While risk management is an ongoing process, the transfer of residual risks through insurance makes the most sense after a foundation of risk management best practices are in place. It can be wasteful and unnecessary to insure financially inconsequential risks. On the other hand, it can be cost-prohibitive to insure bigger risks that are likely to occur when no other steps have been taken to reduce the likelihood of an occurrence. Risk management and insurance are designed to work together, to prevent downsides where possible and provide a safety net for the risk that remains.

Insurance for Your Risks

The ideal insurance is tailored to suit a particular architect, their firm and their risk profile. It provides the just right types and amounts of coverage, balancing costs with the need to protect the business and its operations. Because at the end of the day, an architect needs to focus on architecture, and not their insurance.

Insurance from Lockton Affinity Architect + Engineer can help you control your risks. Coverage includes important benefits to aid risk management, including pre-claim assistance and free contract reviews, plus coverage for legal defense, settlements and judgements.

To find out what coverage will look like for your firm, request your indication online and one of our insurance experts will reach out to discuss your needs.