by Jim Harris, AIA

In our collective annual survey of architect/engineer professional liability insurance carriers, the AIA Risk Management Committee, American Council of Engineering Companies, and National Society of Professional Engineers/Professional Engineers in Private Practice Professional Liability Committee received responses from 13 of the largest insurance carriers currently offering professional liability coverage for architects and engineers in the U.S. The multidisciplinary survey panel invited 10 of the insurance companies to attend interviews with AIA, NSPE, and ACEC representatives to provide clarification and offer further information. The interviews, held on September 30 in Chicago, revealed a number of trends crucial to firm planning for the coming year.

Comments and observations

• The good news is that after three years of significant rate increases across the board, most of the insurance companies interviewed this year reported that they expect rates to stabilize and remain steady for 2005.
• According to the insurers, a key reason that architects and engineers experienced such large rate increases over the last three years was due to the significant drop in investment income that the insurance companies were able to earn on the premium dollars during that period. The reduction of that investment income required the insurance companies to raise the rates on the policies. Most of the insurance companies report this year that they believe that the rates are in balance with their claims and their investment income.
• Several insurance companies reported that they have excess capacity, and that they are aggressively looking to write new policies.
• Most of the companies reported that the frequency of claims is holding steady, but some maintained that the severity or size of claims is rising.
• A number of insurance companies are interested in writing professional liability insurance for architects and engineers at this time, although these companies continue to shift, merge, and realign. Some of recent changes include:

  —The discontinuation of underwriting activities in this market by DPIC, and XL Insurance’s expansion of its market share with its purchase of the renewal rights to DPIC’s book of business
  —The discontinuation of underwriting activities in this market by Kemper Insurance, with its business largely assumed by St. Paul
  —The termination of the underwriting relationship between Arrowhead Design Insurance and Liberty International Underwriters
  —The termination of the underwriting relationship between RA&MCO and the Great American Insurance Companies, and the acquisition of RA&MCO by HCC Insurance Holdings, Inc.

• A few of the insurance companies report that they have expanded their interest in writing policies for design/builders and construction managers, in addition to architects and engineers.
• Over the last few years, a number of professional liability insurance companies have filed mold exclusions with state insurance commissions in the event that they might choose to make them a part of their policies in the future. The majority of the insurance interviewees stated that they have not experienced the level of claims that would necessitate their actually activating that exclusion in their policies.
• Many of the insurance companies interviewed did express concern over the amount of claims resulting from condominium projects, as well as residential projects in general. Several companies reported that they exercise strict underwriting guidelines for architects and engineers whose practice includes a significant amount of condominium work or other residential projects.
• Almost all of the insurance companies reported that they will write no (or only limited) project-specific policies, but several companies stated that they do still write surplus coverage for specific projects for existing policy holders.
• Almost all of the insurance companies reported that they encourage “incident reporting.” They also encourage their policyholders to use their contract review services as well as any pre-claim assistance that the company is willing to offer. Each maintained that the early report of an incident or potential claim does not adversely affect the insurer’s rate unless an actual claim is filed and money is paid toward the claim.

In conclusion, the rate increases in recent years coupled with the expansion in the number of insurance companies offering professional liability insurance coverage to design professionals has created a very competitive and aggressive market. Depending on the size of the firm, your claims history, and your tolerance for risk, there are many options and choices to consider. In good markets or bad, an experienced broker who specializes in professional liability insurance for design professionals remains your best resource whether you are in the process of buying your first policy or renewing your existing policy.

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