Summary: A well designed insurance program is key to a successful design practice, and professional liability insurance is one of the most significant elements of your insurance program. The AIA Risk Management Committee, in collaboration with the AIA Trust, the National Society of Professional Engineers (NSPE), and the American Committee of Engineering Companies (ACEC), conducted its comprehensive annual survey to collect information from the leading carriers who provide professional liability insurance to architects and engineers. A joint meeting was held in Chicago in October 2006 to interview representatives from most of these carriers. The summary below discusses those findings and risk management trends for 2007.

Market overview
A healthy market. All of those interviewed agreed the insurance market is healthy and new capital is coming into the marketplace. The carriers don’t see a major drop in the rates in the near term but do anticipate a trend toward lower rates in the future.

Carriers don’t see a major drop in the rates in the near term, but do anticipate a trend toward lower rates in the future

Claims trends. Most of the carriers are seeing both the number and the severity of claims flatline from last year. This is another good sign for the market. Some carriers that underwrite the larger practices are seeing the claims flat, but the severity of the claims reportedly are increasing. This may reflect the sharp increase of construction costs over the last year, which typically increases the change-order costs to the owner.

Carrier profitability. The carriers that volunteered the information said they were making a respectable profit on their underwriting premiums, which means any returns on their investments will augment the underwriting profits. This is a major change from the last couple of years. It suggests that the rate increases that we have experienced in recent years have contributed to improving the financial health of the industry. The financial ratings by Best’s (a leading rater of insurance companies) reported by the carriers have held steady for this year as well.

Carrier characteristics. The committee also observed that most of the policy forms offered by the carriers are very similar. Although there are subtle differences, we were not seeing any actual exclusion for mold or hazardous waste claims. There is a renewed interest among insurers in offering risk-management seminars and Web sites to help their clients.

Most of the underwriters are seeing their greatest risks in housing, including but not limited to condominiums

Housing issues. When we asked about the segment of the architect and engineering practice that was producing the most significant number of claims, the consistent response was housing. Most of the underwriters are seeing their greatest risks in housing, including but not limited to condominiums. As a result, the carriers are tending to charge a higher rate to firms that do a lot of work in this sector.

Emerging trends
Offshore outsourcing. Offshore outsourcing of professional services was the first trend, which many of us are seeing in the marketplace. Most of the carriers did not yet regard this as a matter of significant concern from a risk standpoint. When asked how this might affect coverage or whether they have seen any claims as a result of outsourcing, the carriers reported little experience with claims related to offshore outsourcing.

Sustainability. Although the carriers did not recall claims associated specifically with sustainability aspects of a project or LEED certification, they were concerned about the potential for claims in this area. This concern is due in part to the increased emphasis on green buildings and sustainable design, including the use of new building materials and systems that have not been proven in the marketplace.

Be clear on the services being performed in the agreements for professional services

Integrated delivery/BIM. While most of the carriers are aware of the debate in the industry about possible problems and the potential for cross collaboration among the designer, builders, and fabricators in the design of a project, none seemed to have any answers or vision of solutions. All the carriers were concerned with the blurring of the lines and responsibilities among architect, owner, and contractor. The carriers’ advice was to be clear on the services being performed in the agreements for professional services.

Next steps
We challenge you to use the survey results and engage your insurance broker to make sure your professional liability insurance program is designed to fit your needs and practice. Ask:

• Is there a strong communication and trust with your broker, your underwriter, and the people who handle the claims?
• How good and accessible is the carrier’s loss prevention program—do you receive value?
• Is your insurer’s premium price competitive with the competition?