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Survey: A/E Insurance Rates are Trending Lower

February 2007 (SmartPros) — Professional liability insurance premiums for engineers and architects are predicted to flatten out or even decrease in 2007, according to a survey of 14 leading A/E insurance companies.

The nationwide survey—carried out by the National Society of Professional Engineers' Professional Engineers in Private Practice, along with the Risk Management Committees of the American Institute of Architects and the American Council of Engineering Companies—compiles information relating to coverage, exclusions, claim trends, and the insurer's history, among other issues.

Among the survey's other key findings:

Through the first two quarters of 2006, the market has accumulated a record surplus of $405.5 billion. As these surpluses continue to rise, it's estimated that premiums will continue to decrease.
Insurers are continuing to focus on more stringent underwriting of the risks for each of their potential insureds. Those who are considered higher risk, due to poor claims history or work in a high risk sector such as condominiums/multi-family, could experience higher rate increases or difficulty finding coverage.
Frequency of claims experienced in the A/E industry, as well as the severity of the claims, has remained fairly stable and in some cases decreased, which is also contributing to the stabilization of the rates.
Downward pressure on premiums is being driven by carriers trying to enter the market or build their book of business by offering lower rates as a means to encourage an insured away from a more established company.

Carriers were asked to provide their opinion of key issues facing the A/E industry. Some of the responses were:

Concerns regarding shared design over the Internet, such as Building Information Modeling
Condominiums/multi-family housing creating very significant numbers of claims;
Slowdown in the housing market has made profits tight, so some developers/builders are becoming aggressive about hunting for A/E claims opportunities;
Plaintiffs are getting increasingly sophisticated in finding new ways to pursue claims for cost recovery against A/Es; and
Performance codes versus traditional building codes.

The survey is conducted each Fall along with personal interviews with select insurance carriers. 14 professional liability insurance programs agreed to participate in the survey, published October 2006: ACE USA, Arrowhead Design Insurance, AVRECO, Beazley Insurance Co., Euclid Managers, Insight Insurance Services Inc., Lexington Insurance Company, Liberty International Underwriters Inc, RA&MCO Insurance Services, State Farm, Travelers Insurance, Victor O. Schinnerer & Company Inc., XL Insurance, and Zurich-American Insurance Company.

To download all survey responses and receive more information on liability and risk management topics for engineers, visit www.nspe.org/liability/in-home.asp.

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