Sticker shock—almost all of us who have purchased professional liability insurance this year have experienced it—and the future is not bright for 2003! With rates up typically 15 to 25 percent in 2002, premium payments were up dramatically. (Premiums being your "rate" multiplied by your "revenues.") For firms that have been in a three-year insurance program with guaranteed premiums despite their growing revenues, the costs for coverage when they come off of that multiyear policy can be shocking.

The good news is that even with the exit of Reliance, Westport and United Coastal, among others, from the A/E professional liability market, the major players, along with a number of specialty firms, are still writing insurance for architects. VOSCO/CNA, DPIC, Zurich, Lexington, RAMCO, Kemper, XL, Ace, and Lloyds of London are alive and kicking. There are even some new carriers in the market, such as Arrowhead/Liberty International.

Annual survey findings
The AIA Risk Management Committee, along with our counterparts from the National Society of Professional Engineers and the American Consulting Engineers Council, met with key underwriters and other representatives from 10 different companies in late September 2002 to understand the current market trends better and provide input about the needs of our memberships. This annual meeting, which also involves our review of the insurance carriers' answers to our comprehensive survey, enables the Risk Management Committee to see trends and provide information to you about this important component of your practice.

Unfortunately, rates will be going up again in 2003—almost universally. The actual percentage will certainly vary from firm to firm, but don't be surprised to see rate increases in 2003 of 15 to 25 percent. If your firm has annual revenues in excess of $5,000,000, you are likely to see rates going up even more than 25 percent.

These increases are a function of a number of recent trends.
• The insurance companies have had to spend more on claims and expenses than they take in from premiums. Moreover, their investments are no longer making up the difference. In fact, last year, investments added to the problem for most carriers.
• Companies are making a higher rate of return on other areas of their business (such as property and aviation) so they may divert their capital and attention away from lower-profit markets, such as professional liability.
• The reinsurance markets are uncertain and certainly more expensive (for a portion of your premium, reinsurers protect your insurance carrier from catastrophic claims).
• Expectations are that claims are on the rise, a phenomenon that, to some extent, can be correlated to the national economy being down. One carrier stated that over the last five years their exposure (measured by their insureds' fees) had gone up 47 percent, with premium growth of only 13 percent and actual rate decreases of 32 percent, with losses mounting.

Some good news
• Mold and terrorism exclusions are still the rare exceptions. However, the potential for these being added to policies is real. You should be sure to discuss these with your broker.
• If you are a small firm (annual revenues under $500,000), there is still a decent chance of getting a multiyear policy if you have a good claims history.
• First-dollar defense can still be found in certain circumstances (though rare).
• There is still competition in the market.

Project policies, on the other hand, do not come with such good news. Although a few carriers still will quote them, most companies have either stopped writing these policies or have severely restricted projects for which they will write them. Though architects frequently consider project policies to be an excellent way to transfer risk, almost all of the insurance companies who were present felt that traditional project policies were not economically viable for them.

It was interesting to note this year that there was a high level of consistency among the answers we received from the different companies. Though they were not identical, the trends were quite similar.

Five factors that will impact your rates:
• Your loss experience
• Changes in your mix of business
• The primary location of your practice and projects
• The limits you are carrying
• Your deductible.

Should you be concerned about these costs? Absolutely! Nevertheless, we are not seeing the level of premium increases and carriers dropping out of the market that we did in the mid-1980s, and it is important for carriers to avoid losing money on a long-term basis. If they don't make money, they will ultimately leave the market, and we will all be much the worse for lack of competitive coverage!

As one of our meeting participants put it: "You need to be really wary of those carriers who are not increasing rates when the rest of the market is going up. Will they still be in business when you need claims to be paid?"

Copyright 2002 The American Institute of Architects. All rights reserved.