After three straight years of moderate increases, insurance premiums for architects and engineers professional liability leveled off in 2015. A new survey by insurance broker Ames & Gough also found that insurers plan to keep rates stable this year in the face of ongoing competition.
Fortunately, claims experience has also been stable.
According to the Ames & Gough survey of 14 insurance companies writing more than 75 percent of the architects and engineers liability (A&E) market in the U.S., most (12) increased their A&E written premium in 2015, while one reported written premium remained even with 2014 and another saw business shrink due to competition.
Eight of the insurers kept rates flat in 2015 while five increased them and one insurer lowered rates.
The five insurers in the survey that increased rates in 2015 did not do so by much. Three realized increases of only up to 2 percent, while one had actual increases of 3 to 5 percent and another achieved increases of 6 to 10 percent.
Heading into 2015, the insurers had anticipated getting bigger increases, according to the last survey by Ames & Gough.
The insurers that participated in the 2016 survey were: ACE (now Chubb), AIG (Lexington), Arch (PUA), Aspen, AXIS, Beazley USA, Berkley Design Professional, CNA, Liberty (LIU), Markel, Navigators, One Beacon, RLI and Travelers.
For 2016, expectations of higher premium rates generally have been modulated by competition. Among insurers in the survey, nine plan to keep rates flat in 2016; the remaining plan modest rate increases of 5 percent or less.
The handful of insurers seeking to raise rates this year plan to target the increases to specific disciplines, such as structural engineering and geotechnical engineering, or specific types of projects, including residential construction and schools, which have been seeing increased claim activity.
“The good news for architectural and engineering firms is that the marketplace for professional liability insurance has seen competition both from existing insurers seeking to expand their business and insurance companies new to this coverage line that want to establish a foothold or gain market share,” said Dan Knise, president and CEO, Ames & Gough, which is headquartered in Washington, D.C. “In the past, competition has been keen among insurers vying for the business of smaller design firms, which many underwriters see as more desirable risks. Yet, lately competition has spread to all segments of the market.”
Despite the competitive environment, Knise said insurers are maintaining underwriting discipline. Changes in rates, terms and conditions are being driven by a number of key factors such as type of projects, which was cited by 86 percent of the insurers, followed by recent claims experience (79 percent), historic claims experience (64 percent), and type of work/service (57 percent).
Knise said that while the ranking of these underwriting factors changes slightly, they have consistently been the top issues cited by insurers in each of the past several years. “The takeaway is that design firms with a favorable loss history, sound risk management, and a project mix and architectural/engineering services not considered higher risk often are best positioned to benefit from the current market conditions,” he said.
Overall, claim experience, as measured by claim frequency, has been stable. The majority (79 percent) of the insurers surveyed reported no change in their overall claims activity in 2015 compared to prior years; 14 percent saw their claim experience improve and 7 percent had worse experience.
The stability of claims may be one factor drawing more insurers to offer design firm professional liability insurance, according to Mike Herlihy, executive vice president and partner with the specialty insurance broker. “Predictable loss experience is a key element for an insurance line to be profitable from an underwriting perspective,” he said.
Indeed, with respect to claim patterns, this year’s findings were identical to those of last years’ survey: only 7 percent saw an increase in frequency of claims, while 43 percent of the insurers surveyed cited an increase in claim severity and the same percent cited an increase in defense costs impacting overall claim payments. When asked about their largest single claim payment in 2015, 57 percent of the insurers paid a claim of $1 million or more, including one whose largest claim was between $5 million to $9.9 million and one that paid between $10 million and $19 million.
Meanwhile, insurers have been monitoring emerging issues. Among the top three emerging issues from an underwriting perspective: evolving project delivery methods, such as the increase in design-build and public-private partnerships; innovation, including use of BIM (building information modeling), new technology and new construction materials/methods; and international exposures.
Source: Ames & Gough
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