by Connie S. McFarland, FAIA, FACHA

Near the close of 2005, the AIA Risk Management Committee, American Council of Engineering Companies (ACEC), and the Professional Engineers in Private Practice Professional Liability Committee of the National Society of Professional Engineers (NSPE/PEPP) sent their annual Professional Liability Insurance Survey to a number of the largest insurance carriers currently offering professional liability coverage for architects and engineers in the United States. Thirteen companies responded to the survey; 11 agreed to be interviewed.

A summary of survey results can be found in the Risk Management page on AIA.org, where you will find each company’s responses on:

1. General information related to the company’s address and contact individuals
2. The company’s relationship to the primary insurer carrier (if the responding company was not itself the insurer)
3. A list of primary carriers that the company represents
4. The length of time that the company has been providing professional liability coverage to the A&E market
5. The company’s total book of business in the A&E professional liability insurance market
6. Its goals for either increasing, decreasing, or maintaining market share in the next two years
7. The carrier’s A.M. Best Rating and financial category
8. The company’s combined ratio for 2003, which is used to determine the company’s profits or losses in underwriting A&E insurance
9. Any underwriting restrictions based on things such as an A&E firm’s size or type of practice (including whether the company offers multi-year policies)
10. What limits of liability are available through the company
11. Any special provisions for new insureds (such as coverage for prior acts)
12. Whether the company seeks feedback from user groups or professional societies before making policy or rate changes
13. A list of states where the carrier offers coverage on an admitted basis or a surplus basis, or where it doesn’t offer coverage at all
14. Any limits on deductibles
15. Minimum premiums for specified amounts of coverage
16. Percentages of increases or decreases in the carrier’s rates over the past three years
17. Expected changes in rates in 2006 and 2007
18. Whether the carrier offers any type of profit sharing or dividend return to its A&E policy holders
19. The company’s ranking of the characteristics that determine premiums
20. Whether the carrier offers project insurance
21. How the company defines and handles claims
22. Litigation and settlement practices.

Of the 13 insurance companies that responded to the survey, the 11 who agreed to interviews with AIA, NSPE, and ACEC representatives provided further clarification. Interviewees were:

• Arrowhead Design Insurance
• AVRECO
• Beazley Insurance Co., a syndicate at Lloyd’s of London
• Insight Insurance Services, for Everest National Insurance Company
• Lexington Insurance Company
• RA&MCO Insurance Services, for HCC Insurance Holdings
• St. Paul Travelers
• State Farm Fire and Casualty Company
• Victor O. Schinnerer & Company, for Continental Casualty Co. (CNA Insurance)
• XL Design Professional
• Zurich.

The AIA, NSPE, and ACEC also appreciate the survey responses from ACE USA and Euclid. Because of time limitations, the design-society representatives were unable to interview them this year.

Selected comments and observations by insurance-company representatives

• In contrast to the significant rate increases that characterized the early years of this decade, most of the insurance companies interviewed in late 2005 expect rates to remain fairly stable in 2006.
• Several insurance companies reported that they have excess capacity and are aggressively looking to write new policies.
• Although there are some variations among the companies, the majority seem to have seen some stabilization in the frequency and severity of claims.
• A number of insurance companies are currently interested in writing professional liability insurance for architects and engineers, although these companies continue to shift, merge, and realign.
• 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 practices include 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 policyholders.
• Almost all of the insurance companies reported that they encourage “incident reporting.” They also encourage policyholders to use their insurers’ contract-review services as well as any pre-claim assistance that their insurer is willing to offer.

In trends similar to those the AIA Risk Management Committee reported in its 2004 survey, the rate increases in recent years coupled with the expansion in the number of insurance companies offering professional liability insurance coverage to design professionals seems to have created a competitive and aggressive market. Depending on the size of the firm, your claims history, and your tolerance for risk, there are a number of options to consider. In good markets or bad, an experienced broker who specializes in professional liability insurance for design professionals remains your best resource, no matter whether you are in the process of buying your first policy or renewing your existing policy

Copyright 2006 The American Institute of Architects. All rights reserved. Home Page