Experience Area F - Practice Management

Question 1

What is PI insurance also known as?

Answer 1

professional negligence insurance

indemnify the insured for legal liability arising from their negligent acts or omissions.

Question 2

What is a Claims-Made Policy?

Answer 2

With a claims-made policy, your coverage only kicks in when you file a claim during the policy period.

Question 3

Under NZACS are employees covered?

Answer 3

Under the current NZACS policy, employees of member firms are automatically insured.

Question 4

Does NZACS cover you in your new firm, if your previous employer is no longer in business so a client sues you directly?

Answer 4

YES THEY DO!

NZACS covers employees faced with a claim against
them arising out of prior employment.

you should check this with each new employer however as firms can opt out

Question 5

When should Architects notify a potential insurance claim?

Answer 5

• when an actual claim is made against them
• when they become aware of the likelihood of a claim against them
• if they learn of circumstances which may lead to a claim against them.

Question 6

What are some examples of situations where you may notify your insurer?

Answer 6

• Discovering an internal office mistake, even if unnoticed by others.
• Allegations of a mistake from another team member (consultant or contractor).
• Issues with design work by another consultant, which the Member coordinated.
• Contractor claims delays due to late information receipt.
• Client contacts the Member post-completion about a latent defect.
• Disputes between other parties involved in the project.
• Client jokingly mentions suing for a specific reason.
• Client refusal to pay the Member’s fee.
• Awareness of an independent report on defects and remediation.
• Noticing unusual repair work on the building, suspecting design or construction defects.
• Receiving a letter from the client or their lawyer indicating the need for inspection or cooperation due to remediation requirements.

Question 7

What kind of liabilites exist in our industry?

Answer 7

• Contractual Liability
• Tortious Liability –third party liabilities
• Joint and Several Liabilities
• Indemnities
• Warrantees
• Consumer Guarantees Act
• Fair trading Act
• Health and Safety in Employment Act
• Breaches of the Companies Act
• Breaches under the Architects Act
• Breaches of the Employment Relations Act

Question 8

What is an Architects liability?

Answer 8

Under Contract
* Breach of contract
* Breach of duty of care owed under contract

Tort of Negligence
* Failure to exercise reasonable skill and care to a standard expected of a similarly qualified and experienced architect and
* Owed to a class of people whom the Architect ought reasonably contemplate could be affected by the advice or actions

Question 9

What are the limiations of liability in time?

Answer 9

* Under Contract – an action must be brought within
* 6 years from the date of the breach
* 12 years from the date of the breach if signed under deed

• Under Tort
• 6 years from the date on which the cause of action accrued
• 6 years from when the negligent act / omission ought reasonably to have been
  discovered.
• Under the Building Act 2004 (s. 393)
• Civil proceedings relating to building work may not be brought after 10 years or
  more from the date of the act or omission.
• This is referred to as the 10 year long stop

Question 10

What are the limitations of liabilities in Quantum?

Answer 10

Can only be limited by agreement (i.e. Under Contract)

Except that under the Consumer Guarantees Act no limitation can be
established
(Applies when one Party is a Consumer and the other is in Trade)

Question 11

How does the AAS Limit the architects Liability in both Quantum and Time?

Answer 11

• Breach, Reasonably foreseeable, Caused by
• Proportionate Liability
• 6 years from DATE OF AGREEMENT
• Core Services concept
• Responsibility for changes
• Limitation for Third Party Claims
• Limitation in Quantum ($250,000)
• Professional Indemnity Insurance cover

Question 12

Who are you responsible for/Owe a duty to?

Answer 12

• Your Clients – Under Contract
• Your Staff – Moral and Contract
• You and Your Family – Moral
• Your Community – Moral and Ethical
• Your Fellow Professionals - Ethical

Question 13

What is insurance Run-off?

Answer 13

Run Off Coverage applies where a company ceases to trade, sells its assets or merges with another entity. The policy provides coverage specifically for any acts occurring prior to the date on which the company/entity ceased trading, sold its assets or merged.

Question 14

What are the risks for Sole Trader in regards to liabilility exposure?

Answer 14

• Both the practice and the principal can be sued
• PI Insurance would cover both the defence costs and damages within the indemnity provided by the policy (Current NZACS policy)
• Defence costs could run to $100,000 or more
• If total claim exceeds the policy indemnity the Practice and the Principal are liable to fund the remainder

Question 15

How do you manage risks as a Sole Practitioner?

Answer 15

• Regularly update adequacy of PI Insurance
• Ensure PI Policy covers both Principal and Practice
• Incorporate Practice as Limited Liability Company
• Form a relationship with another practice to provide continuity to clients in the event of death of disability
• Estate Planning

Question 16

What are the liability risks for Partnerships?

Answer 16

• Each Partner is jointly and severally liable for the actions (or in-actions) of each of the other Partners
• After the assets of the Partnership are exhausted by a claim the Partners become personally liable for the outstanding amount to the extent of their own Private Fortunes

Question 17

How do you manage risks in a Partnership?

Answer 17

• Adequate PI Insurance
• Incorporate Practice into a Limited Liability Company
• Succession Planning
• Estate Planning

Question 18

What are the liability risks in an Incorperated Practice?

Answer 18

• Exposure to claims limited to the assets of the Company
• Individual Directors not liable for actions of other Directors
• Directors can be liable for breaches of duty under the Companies Act
• (Fines and Infringements)
• Directors (and staff) can be found liable for negligent work they undertake working in the Company
• A Director can be joined in an action and found liable for losses of Company Assets

Question 19

WHat are the directors dutuies under in the Companies Act 1993?

Answer 19

S.131 Duty of Directors to Act in Good Faith and in the best interests of the Company

S.137 Duty of Care, act using Diligence and Skill

PRIMARY RESPONSIBILITY OF DIRECTORS (THE BOARD)
* Preparation of Financial Statements
* Establishing Goals and Strategic Plans
* Annual Budgets and Monitoring
* Managing Risk
* Working with Management to create Shareholder Value

Question 20

How do you manage risks in an Incorperated Practice?

Answer 20

• Adequate PI Insurance
• Robust in-house procedures and standards
• Succession Planning
• Estate Planning
• Disaster Protection for the Company and its Shareholders

Question 21

What is a retroative date?

Answer 21

This iis the date at which your cover starts in regards to insurance

Question 22

What challenges might architects face when starting their own practice?

Answer 22

hallenges include periods of isolation, uncertainty, financial outlay, and the need for steady progress without a boss to turn to.

Question 23

hat opportunities and risks come with starting an architectural practice?

Answer 23

Opportunities include special knowledge, expertise, and existing professional contacts. Risks involve slow progress, financial burden, and potential periods of isolation.

Question 24

Why is a thorough examination of the market important before starting a practice?

Answer 24

Examining the market ensures reasonable hope of opportunities and provides confidence in your market potential.

Question 25

What legal, ethical, and liability considerations are crucial when starting a practice?

Answer 25

Considerations include understanding legislation, abiding by ethical principles (such as the NZRAB Code of Ethical Conduct), and being aware of duties and responsibilities to clients and other parties.

Question 26

What role does a business strategy play, and what should be the starting point in setting objectives?

Answer 26

business strategy helps focus on the future, anticipate change, and meet challenges with a reference point. The starting point for setting objectives is to list the services, define special skills, identify the target market, and evaluate the competition.

Question 27

What is crucial in identifying a unique advantage for your practice?

Answer 27

Identifying and defining any special skills or expertise that set you apart from the competition is crucial. This unique advantage becomes a key element of your business strategy.

Question 28

What financial considerations should be addressed when starting a practice, and what might be necessary if borrowing is required?

Answer 28

Address financial considerations by determining the money needed to start operating and considering borrowing if required. If borrowing is necessary, drawing up a Business Plan becomes essential.

Question 29

hat are the main alternatives for forming an architectural practice, and what factors should be considered?

Answer 29

The main alternatives for forming an architectural practice include operating as a sole trader, a partnership, a limited company, or establishing a co-operative. Factors to consider when choosing include legal and financial implications, consultation with a solicitor and accountant, and alignment with personal attitudes and philosophy.

Question 30

What are the advantages and disadvantages of operating as a sole trader in architectural practice?

Answer 30

Advantages of being a sole trader include freedom in business decisions, but disadvantages include full personal liability for debts and damages awarded against breach of contract, potentially leading to bankruptcy.

Question 31

hat considerations are important when setting up a partnership in architectural practice?

Answer 31

Considerations include establishing a good working relationship, having a formal partnership deed, describing entitlements, limits of authority, responsibilities, disengagement procedures, and understanding joint and several liability.

Question 32

Why might architects choose to run their practices as companies, and what are the advantages?

Answer 32

Architects may choose companies due to limited professional liability. Advantages include limited liability for contractual debts, separation of ownership from management, the ability to issue shares for fundraising, simplified taxation, and better superannuation provision for directors.

Question 33

What is a co-operative, and what are the common types in architectural practice?

Answer 33

A co-operative in architectural practice involves collective ownership and control. Common types include common ownership co-operative and co-ownership co-operative, both legally established with limited liability.

Question 34

How does the size of an architectural practice impact the service provided, and what considerations should be made regarding resources and skills?

Answer 34

The size of an architectural practice doesn’t necessarily impact service quality, but the collective ability of the practising unit does. It’s crucial to assess available resources and skills and identify any lacking, which will guide the selection of partners, employees, and consultants for optimal and cost-effective operation.

Question 35

What challenges can small architectural practices face, and how can self-sufficiency be an asset?

Answer 35

Challenges for small practices include little flexibility, long hours, the need for external services, and hiring professional or technical help. Practising alone initially can build resilience and a sense of survival, especially during challenging times.

Question 36

hat considerations should be taken into account when deciding whether an architectural practice should remain small or grow larger?

Answer 36

It’s crucial to have a definitive view about the size of the practice, considering whether principals should work on all commissions or be supported. Indecision can lead to inefficiencies, and employing assistance too quickly is a common pitfall, requiring cautious hiring and firing practices.

Question 37

What guidelines should be followed when naming an architectural practice, and why is it important to check for existing practices with the intended title?

Answer 37

Stationery should comply with the NZRAB Code of Ethical Conduct, providing accurate information. If the practice’s name excludes principals’ names, they should be shown elsewhere. Before ordering or designing stationery, it’s essential to check for existing practices with the intended title. If practising as a company, the name must be registered.

Question 38

hy is it crucial for architects starting their own practice to seek advice from competent legal and financial advisers?

Answer 38

Seeking advice from competent legal and financial advisers is crucial for architects starting their practice because they are not experts in running a business.

Professional advisers provide essential guidance on legal matters, financial planning, tax advice, and ongoing financial affairs, contributing to the development and success of the practice.

Question 39

What role does an accountant play in the early stages of an architectural practice, and what are the standard services typically required?

Answer 39

An accountant is essential for developing and maintaining a sound financial approach in the early stages of an architectural practice.

Standard services typically required include advice on tax matters, bookkeeping procedures, and ongoing advice about the financial state of the practice. Job costing, quarterly audits, and annual audits, if needed, can provide valuable information for financial practices, fee bidding, and negotiation.

Question 40

hat legal services might an architectural practice require in its early days, and what are some later considerations?

Answer 40

In the early days, legal services for an architectural practice may include advice on the form of practice, acquisition of premises, and general advice as the practice establishes itself.

Later considerations may involve consulting solicitors about building contract conditions, claims, professional liability, planning legislation, and copyright of drawings.

Question 41

hy is it important for architects to build a good working relationship with their bank manager?

Answer 41

Building a good relationship with the bank manager is crucial as they can be instrumental in providing startup loans and financial support.

The bank manager’s local connections and interest in supporting business initiatives make them valuable allies, providing insights into work opportunities, local grants, government enterprise schemes, and advice on financial administration.

Question 42

What are the critical aspects architects should define for each project to ensure sound business practice?

Answer 42

Architects should precisely define:

• The service they are going to provide.
• The client for whom they are working.
• The terms on which they will work.
• The agreed fee for the service.

Question 43

Why should architects exercise caution regarding speculative work and low fees, and what risks are associated with such practices?

Answer 43

Architects should exercise caution with speculative work and low fees as they can be counterproductive, devalue the work, and harm professional respect.

Undertaking speculative work without a high chance of securing a commission can be risky, and setting low fees may not reflect the value of the services provided.

Question 44

Why is it important for architects to insist on written agreements and confirm all instructions in writing?

Answer 44

Insisting on written agreements and confirming instructions in writing helps maintain a strictly businesslike approach.

Whether dealing with friends or clients, written documentation, preferably using NZIA formal documents, ensures clarity regarding agreed services, fees, and appointment conditions. Any subsequent changes should also be properly recorded and documented.

Question 45

hat is essential for architects to negotiate fees successfully, and why is keeping time sheets important?

Answer 45

To negotiate fees successfully, architects need to understand the cost of each service component. Keeping time sheets and calculating a rate per hour for each team member helps reflect salary, practice overheads, and profit margin. This practice allows architects to estimate fees realistically, build a cost database, plan workload, and forecast income with confidence.

Question 46

How has the abolition of mandatory fee scales and the lifting of restrictions on advertising professional services affected architects, and why is precise cost calculation essential?

Answer 46

The abolition of mandatory fee scales and the freedom to advertise professional services have led to common fee tendering practices. Architects must now compete by calculating the precise cost of their services. Making fee bids below the actual cost is discouraged, as it harms both the project, the client, and, in the long term, the architect and the profession.

Question 47

What are the various funding sources architects can consider for their business?

Answer 47

Architects can consider sources like venture capital, loans linked to insurance policies, and sale and leaseback of office premises to raise funds for their business.

Question 48

What are the key components included in a Business Plan for securing finance?

Answer 48

A Business Plan typically includes a description of the firm, its management structure, targeted clients, market evaluation, business philosophy, marketing efforts, financial performance, management controls, and details of financing required.

Question 49

Why should architects be cautious about using personal assets, such as a house, as security for loans?

Answer 49

sing personal assets as security should be a last resort due to potential risks and should be done cautiously to avoid unfavorable consequences.

Question 50

What is a key consideration for ensuring a healthy cash flow in a small practice?

Answer 50

It is crucial to set up proper financial controls to ensure a healthy cash flow. Implementing practices like asking clients for cash deposits and establishing rules for monthly fee payments can contribute to a stable financial situation.

Question 51

What is the double entry system in bookkeeping, and why is it widely used?

Answer 51

The double entry system records each transaction with two opposite aspects: value received and value given. It is widely used as it ensures accuracy by maintaining a balance between total value received and total value given, revealing the overall financial equilibrium of the business.

Eg how much money we spent vs how much money we gained

Question 52

hat are the typical ledgers used in bookkeeping, and how are transactions recorded?

Answer 52

A ledger, also called a general ledger, is a record of a business’s financial transactions. It summarises all the revenue and expenses of the business, plus the debts owed and assets owned. The transactions in a general ledger are organised into five main types; assets, liabilities, equity, revenue, and expenses.

Common ledgers include creditors’ ledger, clients’ (debtors) ledger, and general or ‘nominal’ ledger. Transactions are initially recorded in books of original entry, such as a cash book and a petty cash book. Entries from these books are then posted to appropriate ledgers.

Question 53

hy is it crucial for small practices to maintain separate bank accounts for business and personal transactions?

Answer 53

aintaining separate bank accounts ensures clear financial distinctions between personal and business transactions. This practice aids in accurate financial management, preventing confusion and facilitating the tracking of business-related expenses and income.

Question 54

What is the importance of analyzing a bank statement for small practices?

Answer 54

Small practices should analyze bank statements regularly to reconcile balances, identify outstanding transactions, and manage cash flow effectively. This process helps in tracking the financial health of the business and addressing any discrepancies between the statement and the cash book.

Question 55

What information should architects keep up to date for effective financial control?

Answer 55

rchitects should keep updated lists of debtors, creditors, current cash situation, and a cash flow forecast for the next 12 months. These documents serve as crucial tools for financial management, providing insights into money owed, money owed, and future cash flow expectations.

Question 56

How can computers benefit architects in financial management, especially when starting a practice?

Answer 56

omputers offer various benefits, such as accounting software and spreadsheets, aiding in financial management. For architects starting a practice, a computer enables self-sufficiency in handling accounts and secretarial duties. Additionally, it facilitates efficient communication, collaboration, and information retrieval.

Question 57

How is the taxable profit for sole traders and partners taxed, and what additional insurance is usually required?

Answer 57

For sole traders and partners, taxable profit is added to personal income and taxed accordingly. They are also required to pay Accident Compensation Insurance (ACC) at a flat rate.

Question 58

What is the income tax year, and why is it crucial for businesses, especially in the first year, to plan for tax payments?

Answer 58

he income tax year runs from April 1 to March 31, with tax liability based on the previous year’s profits. In the first year, two assessments may cover the initial two income years, and planning is crucial to ensure funds are set aside for tax payments. Seeking advice from an accountant on the timing of business startup and estimating tax payments is recommended.

Question 59

How does taxation work for companies, and what considerations should be addressed regarding personal tax positions?

Answer 59

Companies need to check the current rate of company tax, which varies with each year’s Budget. Accountant advice is essential to comply with the Companies Act and understand implications for personal tax positions. Interest on business loans is usually eligible as a taxable expense, and accountants can guide on optimizing tax benefits, including share schemes.

Question 60

What is GST, and how does it apply to architectural services?

Answer 60

GST is levied on most taxable supplies of goods and services. Architectural services are taxable at the standard rate. If turnover exceeds a set limit, registration is required, and GST must be added to charges. Input tax can be reclaimed on equipment purchases. Invoices to clients should include identifying GST details, service description, and charges before and after GST.

Question 61

Why is Professional Indemnity Insurance (PII) essential for architects, and what does it cover?

Answer 61

PII is crucial for architects as it provides protection against claims in the event of serious issues. It safeguards architects from great personal financial risk and expands opportunities for work, as some clients insist on this coverage. PII covers liabilities arising from errors or negligence. When obtaining PII, architects must accurately complete proposal forms to prevent accusations of non-disclosure. Insurers may defend against claims or pay out damages, and architects need to be mindful of the coverage limits and any excess they might bear.

Question 62

Why is it crucial for architects to complete Professional Indemnity Insurance (PII) proposal forms accurately?

Answer 62

Accurate completion of PII proposal forms is essential to prevent accusations of non-disclosure. Providing comprehensive and truthful information ensures that architects receive appropriate coverage and helps avoid complications during the claims process. Incomplete or inaccurate details may lead to underinsurance, where insurers might decline claims or only offer partial compensation.

Question 63

What is the primary role of Professional Indemnity Insurance (PII) for architects, and how does it contribute to their professional security?

Answer 63

The primary role of PII for architects is to provide protection in the event of serious issues, such as errors or negligence. It serves as a financial safety net, reducing personal financial risk and expanding opportunities for work. PII covers liabilities that may arise from professional services, ensuring architects are defended against claims or compensated for damages, up to the specified coverage limits.

Question 64

hy might an architect consider obtaining Employer’s Liability Insurance?

Answer 64

Emmployer’s Liability Insurance is crucial for architects as it provides coverage for claims from employees arising due to loss or damage on the premises. This insurance protects employers from potential legal liabilities associated with injuries or damages incurred by employees during work activities.

Question 65

What insurance considerations should architects keep in mind as their practice develops?

Answer 65

As a practice grows, architects should consider various insurance needs, including coverage for office premises and contents, family protection in case of incapacity or death, travel insurance, special coverage for computer installations, company car insurance, and interruption of business insurance. It’s essential to assess evolving requirements and obtain multiple insurance quotations to compare terms and premiums for comprehensive coverage.

Question 66

Why is it essential for new architectural practices to establish organized filing systems?

Answer 66

Establishing organized filing systems is crucial for new architectural practices to manage the accumulation of information effectively. The primary categories are administrative and project-related files. A well-organized filing system helps in easy retrieval of information, enhances efficiency, and ensures that valuable data is easily accessible. Job record forms, fee files, and a systematic approach to categorizing information contribute to maintaining a well-organized office.

Question 67

hat are the three golden rules to bear in mind for effective marketing in the architectural field?

Answer 67

• Go out and find new clients: Clients are unlikely to discover the practice without active efforts.
• Persuade clients of superiority: Convince clients that the architectural practice excels in comparison to competitors.
• Nurture the client base: Maintain regular communication, keep clients informed, and sustain interest to build lasting relationships.

Question 68

What are the key aspects architects should keep records of to effectively manage workload and resources in a new practice?

Answer 68

1. Resources Needed: Document the resources required for each project.
2. Costing: Keep records of how each project is costed.
3. Profit Target: Set and record the targeted profit for each project.
4. Actual Profit: Record the achieved profit for each project.

Question 69

What options can architects consider to cope with increased workload pressure when in-house resources are insufficient?

Answer 69

1. Collaboration with Other Practices: Work in conjunction with other architectural practices.
2. Staff Secondment: Borrow staff on secondment. (Like when graduates get loaned to another business)
3. Subcontracting: Outsource specific tasks or subcontract work.
4. Part-time or Short Contracts: Bring in staff on a part-time or short contract basis.
5. It’s crucial to define responsibilities and keep insurers informed of such arrangements to maintain client confidence.

Question 70

Why is maintaining sound lines of communication important in an architectural practice?

Answer 70

Sound lines of communication are crucial in maintaining mutual trust between parties involved in architectural projects. The use of standard documentation is recommended, and procedures for reporting to clients, along with appropriate lines of communication, should be established at the project’s outset. Clear communication helps ensure that the practice runs smoothly and efficiently in both business and project aspects.

Question 71

What factors contribute to ensuring that meetings within an architectural practice are effective?

Answer 71

To ensure effective meetings within an architectural practice:

1. Meetings should only be held if necessary, avoiding unnecessary time wastage.
2. Every meeting should have a well-defined agenda to cover matters systematically.
3. Detailed minutes should be maintained as a record of discussed items and agreed-upon actions.
4. Agendas help focus discussions, and minutes serve as reminders for agreed actions.

Question 72

Why is handling office correspondence promptly and systematically important for architects?

Answer 72

Handling office correspondence promptly and systematically is crucial for risk management, especially during the establishment of a practice. Architects should review all outgoing letters and reports, as well as inspect all incoming mail. This responsibility ensures effective communication and risk management, emphasizing the architect’s accountability.

Question 73

Why is it essential for architects to possess clear and unambiguous communication skills?

Answer 73

lear and unambiguous communication skills are essential for architects to convey information effectively. Confidence in communication, especially in written mediums, is crucial for avoiding misunderstandings and ensuring that messages are accurately conveyed. Architects should address any communication challenges promptly.

Question 74

Why is it important for an architectural practice to have an office manual?

Answer 74

1. Standardization: It establishes standard office and technical procedures, ensuring consistency.
2. Guidance: It provides information about coding, registration, and classification systems used in the practice.
3. Organization: The manual is organized and written in a way that is easy for staff to understand and use.
4. Development: It can be regularly updated, developed, and used for review, reflecting the evolving practices of the firm.
5. Comprehensive Statement: Over time, the manual evolves into a comprehensive statement of how the practice thinks and works.

Question 75

hy might it be desirable for an architectural practice to consider setting up a quality management system?

Answer 75

1. Enhanced Efficiency: It helps in maintaining well-defined and efficient office procedures.
2. Quality Assurance Certification: It can lead to quality assurance certification, signifying adherence to recognized standards.
3. NZIA’s Offering: The NZIA provides a quality management system that can be utilized for this purpose.
4. Detailed Documentation: A well-maintained office manual serves as a starting point for developing detailed documentation required for a quality management system.

Question 76

Who is typically responsible for compiling and maintaining the office manual in an architectural practice?

Answer 76

There must always be someone with the specific responsibility for compiling and maintaining the office manual. In the early days of practice, this responsibility often falls on the architect or the practice owner.

Question 77

hat does Continuing Professional Development (CPD) encompass for architects?

Answer 77

ontinuing Professional Development (CPD) for architects includes activities constituting the ongoing learning process throughout their working life. It is a broad concept encompassing various aspects, such as technical and business development issues. CPD activities can range from formal courses to informal methods like networking, meetings, site visits, and exhibitions.

Question 78

What are the components of CPD for architects, and what is the recommended participation?

Answer 78

Components of CPD for architects include both formal (coursework) and general activities (anything else). The recommended participation is a balance, aiming for 50% in formal CPD. While formal coursework is encouraged, the NZIA recognizes the challenges and encourages architects to engage in various learning activities.

Question 79

Why is Continuing Professional Development (CPD) important for architects?

Answer 79

CPD is crucial for architects because:

1. Skill Improvement: It allows professionals to improve existing skills and acquire new ones.
2. Technological Awareness: It helps architects stay abreast of technological developments.
3. Common Sense: It is considered sound common sense for professionals to take action toward self-improvement and skill enhancement.
4. Risk Management: Engaging in CPD is a form of good risk management, ensuring architects remain competent and informed in their field.

Question 80

hat is the fundamental purpose of any insurance policy, particularly in the context of professional indemnity insurance?

Answer 80

The basic purpose of any insurance policy, including professional indemnity insurance, is to transfer risk from an individual to a collective population of policyholders. Through the insurance company, policyholders collectively contribute to cover defined risks or losses, allowing the individual to mitigate potential financial burdens.

Question 81

Why do insurance policies, including professional indemnity insurance, often include an excess or self-insured first layer?

Answer 81

Reasons for Excess:
Cost Control: Including an excess helps control administration costs associated with processing claims.
Discipline: It imposes responsible self-discipline upon the policyholder, encouraging them to manage risks effectively.
**Claim Distribution: **Experience shows that many claims fall within the self-insured layer, reducing the frequency of claims reaching the maximum insurance cover.

Question 82

How does the handling of seemingly spurious claims differ in professional indemnity insurance, and what challenges might architects face in such situations?

Answer 82

Handling Spurious (false) Claims:

Insurance Involvement: In professional indemnity insurance, the insurer takes over all rights and duties of the insured, including handling the defense and the right to settle when commercially justified.

Challenges for Architects: Architects may face the dilemma of proving innocence at a cost of time, money, and potential damage to their reputation. Sometimes, settling out of court without admission of liability may be a commercial decision.

Question 83

What is public liability insurance?

Answer 83

Public liability, also known as general or broadform liability, is the most basic insurance requirement for contractors. It provides cover if there is damage to or loss of another person’s property that the contractor is responsible for.

This type of insurance covers damage to third party property as well as personal injury to others to the extent that is not covered by ACC.

Question 84

What is the difference between public liability and professional liability insurances?

Answer 84

Public Liability covers you in cases where your business causes damage to property or injury to third parties, and you are liable for the related costs.

Professional Indemnity, on the other hand, protects you when an incident happens due to the professional recommendation to your clients (your negligence)

Question 85

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Answer 85

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Question 86

Claims based policy vs occurrence based policy

Question 87

What are fringe tax benefits?

Answer 87

Fringe tax benefits are extra things your job might give you, like health insurance or help with transportation costs. Instead of taxing them like regular pay, the government taxes them differently. So, you might end up paying less tax on those benefits.

Question 88

What is a memorandum of understanding?

Answer 88

A Memorandum of Understanding (MOU) is a formal non-binding agreement between two or more parties outlining the terms and details of an understanding, including each parties’ requirements and responsibilities.