In a Professional Liability market characterized overall by most brokers and insurance executives as full of capacity and relatively stable rate-wise (even if once-high Excess limits are harder to get now than they used to be), recent discussions of this line include talk of hardening in the Architects & Engineers (A&E) market.

The sluggish building economy continues to significantly impact A&E. With fewer construction projects under way than in previous years, professionals are bidding low on contracts that often fall out of their core knowledge area—which can lead to claims after botched jobs. “The driver is foremost the economy—and A&Es having to take available business that may not necessarily be in their field of expertise,” says Ronna Green, vice president of Professional Liability at Scottsdale Insurance in Arizona. “That leads to errors, then to claims, then to underwriting adjustments.”

Another factor in increased claims among design professionals is the evolving standard of care by which they are judged. When contracted for a project, the architect's responsibility for making sure structures are built to their precise specifications is growing. It's not uncommon for a firm's design to be called into question after those doing the construction cut corners to save money—and an accident occurs involving, for example, a railing or balcony. The architect is then named in the resulting lawsuit.

Andrew Robinson, who oversees Professional Liability for The Hanover as its executive vice president of Specialty, notes he's seeing more relaxed privity of contract between clients and service providers, which leads to an increase in exposure from third-party liability—and thus more lawsuits in what he calls a “tough tort environment” for design professionals.

These facts are beginning to have a definite effect on pricing. Marsh & McLennan Managing Director Ken Rand says he's seeing rate increases of about 5-10 percent in A&E policies—not exactly what you'd call a hard market, but hardening.

Bob Rogers, AIG's global head of Architects & Engineering, also maintains that the A&E market is hardening. Incumbent carriers with books of A&E business are driving rate unanimously, he says, and some new entrants are looking for premium in this space as well.

Rogers says a big factor behind these price increases is the need to cover claims from the construction boom years, during which designers and engineers—looking to make hay while contracts were abundant—in many cases overextended themselves and failed to deliver on all the projects they took on. Additionally, the severity of claims in the design space, he points out, “tend to be large.”

Gary Head, chief underwriting officer for Hiscox USA, agrees that the A&E market in particular, and the Professional Liability market overall, has been showing signs of hardening for the past few years, but he says prices still have a ways to go: “Unfortunately, we aren't seeing [an increase in rates] to the extent that we'd like to.”

The stiffest rate increases are being seen primarily by the largest A&E players. Tom Miller, senior vice president of brokerage Lockton, says competition for business in the middle market (design firms with revenues under $25 million, which account for the majority of A&E insureds) remains highly competitive, thanks to a robustly sized market. “There are 60-odd carriers that compete for A&E business,” Miller notes.

Special Reports /

A&E Update: Continued Losses Lead to Market Hardening

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