A survey by insurance broker Ames & Gough finds the insurance market for Architects and Engineers Professional Liability Insurance (PLI) firmed for the second consecutive year and a majority of insurers expect the coverage to continue to firm this year despite overall claim experience remaining flat.
The survey of 13 leading insurance companies—representing more than 70 percent of the PLI insurance to architects and engineers in the U.S.—found that 62 percent had rate increases last year. None saw their premium rates drop. Significantly, half of those with higher rates had average increases of 6–10 percent or more.
For 2013, 69 percent of insurers plan rate increases. Increases range from the low single digits to 10 percent or more with the average in the 4–8 percent range.
"Although PLI premiums are rising for most architectural and engineering firms, the market is far from uniform in its pricing," said Dan Knise, president and CEO of Ames & Gough. "We're seeing different dynamics at play, as some insurers reconfigure their portfolios to include more small firms and lure them with competitive pricing while raising rates for larger firms. Similarly, insurers just beginning to offer this coverage are being more aggressive on pricing when compared to longer-term players who've paid some claims.
"Even renewals are sometimes playing out differently than new business for the very same insurer as management tries to balance cautious underwriting with the need to grow premium revenues," he added.
The survey traced the insurers' drive for higher rates to a variety of factors. More than half—56 percent—of those planning increases indicated rates were inadequate as a result of premium reductions over time. Forty-four percent of those surveyed said historic claims experience for losses going back more than two years, was the second biggest factor in raising rates. Rising reinsurance costs and recent claims experience were additional rate driver factors. Despite the rate increases, capacity remains stable with some insurers providing limits of up to $25 million.
Mike Herlihy, executive vice president and partner in the Ames & Gough Boston office said more design firms are purchasing higher limits either because they need added protection to address an evolving risk profile or because owners are requiring their architects and engineers to carry much higher limits. Clients are seeking $5 million of limits or more today, compared with $1 million or $2 million just a few years ago.
To help keep costs under control some firms are increasing the size of their policy deductibles and/or purchasing so-called "split limit" policies as a way to increase protection while holding down premium costs. A split-limit policy might have a $2 million per claim limit and a $4 million aggregate limit. Others rely on single-project excess limits to meet demands for more insurance.
A copy of the survey, "PLI Market 2013: Insurers Adjust Rates, But Maintain Capacity" is available by e-mail at info@amesgough.com.
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