Architects and engineers experienced a third year of moderate premium rate increases in 2014 for their professional liability insurance (PLI) following an extended cycle of softening premium rates.
In 2015, insurers are trying to maintain rate stability and adhere to sound underwriting practices according to the Ames & Gough 2015 Architects & Engineers Professional Liability Insurance Market Survey, which examined key pricing and coverage trends and offers perspectives to help design firms manage their professional liability exposure.
Against a backdrop of increased exposures, modest rate increases and a benign claims environment, some insurers saw profits wane in 2014. Many pointed to an over-abundance of capacity, lackluster investment performance, and in some lines, deteriorating underwriting results, as the reasons for this decline in financial performance. Given these dynamics, insurers remain especially cautious in their underwriting practices. Notably, with respect to their professional liability business, they are examining recent and historic claims experience and carefully assessing changes in risk profiles and participation in high-risk projects.
- In terms of premium collected, 79 percent of the insurers saw their PLI business grow in 2014, mostly due to new business and renewals with increased exposures as architects and engineers benefited from the economic rebound.
- Sixty-four percent of insurers had modest premium rates increases in 2014. Many insurance company executives continue to hold the line on rates or to seek modest premium rate increases in 2015. Underwriters need to maintain a rigorous underwriting regimen for renewals while working actively to grow top-line premium through new business. Fortunately, capital continues to flow into insurance and reinsurance as institutional investors seeking safe havens for their money still see opportunities in insurance and reinsurance. This expansion of capital will help stabilize the market and limit any wild swings.
- Claim experience improved for 36 percent of insurers in 2014 compared to prior years, while 64 percent reported no change in their overall claims.
- When asked about recent claim patterns, 43 percent cited higher claims frequency; however, continues to trend downward with 21 percent of the insurers reported seeing fewer claims overall.
- Some areas continue to be the source of greater numbers. For instance, among those surveyed, 43 percent identified certain project types, such as condominiums, schools, waste-water treatment and data centers as causing more claims. In addition, 36 percent cited increased defense costs as an emerging cost driver for claims. Only two insurers reported cyber-crime claims, with one noting the loss stemmed from a stolen laptop.
- Among insurers planning rate increases in 2015, most cited inadequate rates as a result of declining rates from 2005–2011. Historic claim experience was the second biggest factor driving increases, cited by 25 percent of those planning to raise rates, followed by recent loss experience, inflation, underwriting criteria and the need to maintain premium levels above current and anticipated loss trends.
What to Expect in 2015
For 2015, these developments likely will mean insureds with no changes to their risk profiles, positive claim experience and growing revenues. Insureds are likely to see only modest premium rate increases in the two-to-five percent range on renewal. Some insurers may actually offer lower premiums to win a new client; however, insureds need to be careful to weigh the value of long-term relationships, positive coverage enhancements, risk management and claims service before jumping from insurer to insurer.
A&G advises clients to seek stable insurer partnerships wherever possible. Experience has shown that building a track record with one insurer can be invaluable in addressing unique coverage needs or complex claims issues. Having said that, A/E firms should consider evaluating quotes from competing insurers every three to four years.
In comparing insurers, buyers should consider not only the financial strength of the potential replacement insurer but also check out whether or not the policy terms and conditions offered provide the same or broader protection and the quality of the claim and risk management services available. Will the new insurer be able to maintain reasonable pricing over multiple years? Finally, keep in mind relationships generally have proven valuable to buyers in a tightening insurance market.
When asked about prominent issues from an underwriting perspective, 43 percent of the insurers cited new construction materials/methods; 36 percent cited increases in design-build and public-private partnerships; and 29 percent cited use of BIM and technology. Other issues gaining the attention of underwriters include:
- sustainable design;
- integrated project delivery;
- rise in condo projects;
- sophistication of owners and plaintiffs (including changing judicial interpretation of laws that find coverage for plaintiffs); and
- performing services outside of disciplines or projects outside of traditional services.
The property/casualty insurance market for architects and engineers is expected to remain stable in 2015. That stated, some lines of coverage may see larger than expected increases, including business auto and workers’ compensation in certain states. Firm leaders should continue to remain vigilant about risk management and also ensure that they can provide a comprehensive insurance submission/application for renewal.
To obtain a complimentary copy of the Ames & Gough survey, PLI Market 2015: Most Insurers Seek Stable Rates Amid Competition, email email@example.com.