Insurance Market Leader Ames and Gough report Premium Price Decreases
Although a slim majority of insurance companies providing architects and engineers professional liability insurance saw their rates stabilize in 2016, nearly one in three experienced modest rate decreases, according to a new survey by Ames & Gough.
Despite intense competition, insurers are maintaining underwriting discipline and placing greater emphasis on claims experience. This year, 95 percent of the insurers surveyed identified recent claims experience as a top reason to raise a firm’s professional liability insurance rates, a significant jump from the 79 percent that cited the factor last year. The other top three underwriting factors this year are: type of projects (84 percent); historic claims experience dating back more than two years (63 percent), and type of work or service (47 percent).
When asked whether plans to develop and repair the U.S. infrastructure raised concerns for architects and engineers professional liability exposures, 63 percent of the insurers surveyed cited the failure of design firms to adhere to contractual best practices when negotiating new projects, 53 percent pointed to firms accepting contractual responsibility outside their expertise, and 32 percent were wary of the inability of design firms to effectively assess and manage subconsultants.
“Even though there’s widespread enthusiasm over opportunities arising from the anticipated investment in infrastructure, design firms still need to maintain sound risk management in evaluating new projects, beginning with reviewing their contracts,” said Joan DeLorey, Ames & Gough senior vice president and partner. “While the insurance market is competitive, the buyers benefitting the most will be those that maintain high standards for managing risk, including evaluating the risk-reward potential of new projects and knowing how a change in project mix might affect their risk profile and insurance program.”
For the second consecutive year, 79 percent reported no change in their overall claim activity compared to prior years; in 2016, however, a greater percentage of insurers (21 percent) saw their claims experience improve and none had a worse experience.
Meanwhile, insurers have been monitoring emerging issues. Among the most prominent were: judicial rulings that are eroding protections for design firms under state statutes, such as economic loss doctrine (79 percent); evolving project delivery methods (e.g., design-build and private-public partnerships), cited by 68 percent; innovation, such as the use of BIM, technology and new construction materials/methods, and international exposures (each at 32 percent).