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Architects & Engineers Errors & Omissions Market Hardening

 

The Professional Liability market is currently being characterized by insurance brokers as full of capacity with comparably stable rates, even though higher excess limits are substantially harder to obtain than they used to be.  The Architects and Engineers (A&E) market is hardening as result of fewer construction projects than in previous years.  In addition, because of the fewer construction jobs, professionals bid on contracts that fall out of their core area of expertise.  This leads to claims on their Errors and Omissions policies for botched jobs. 

Ronna Green, vice president of Professional Liability at Scottsdale Insurance company said, “The driver is foremost the economy-and A&E’s having to take available business that may not necessarily be in their field of expertise.  That leads to errors, then to claims, then to underwriting adjustments.”

The evolving standard of care by which design professionals are being judged is another factor contributing to increased claims.  An architect’s responsibility for making sure structures are constructed to the precise specifications of the design plan is increasing.  Typically, a design firm’s plan is called into question when contractors cut corners to save money.  Then, when an accident happens, such as a railing or balcony collapse, the architect is named in the lawsuit. 

Another national insurer, Hanover, advises how the indemnification clauses in contracts between clients and contractors are more relaxed.  Andrew Robinson, vice president of Hanover’s Specialty Professional Liability department said that this leads to increases in exposure for third-party liability and results in more lawsuits in what he refers to as the “tough tort environment” for design firms. 

These factors are definitely impacting pricing.  Ken Ran managing director of Marsh and McLennan said that A&E policies are currently increasing 5 to 10 percent.  Even though it’s not literally a hard market, the market is beginning to harden.   Bob Rogers global head of AIG’s Architects and Engineering also confirms the market is hardening.  He says that incumbent insurers are unanimously driving the rate for A&E business and that carriers new to the market are also looking for market share. 

According to Rogers, the largest contributing factor of the pricing increase is that claims are still being covered from the period where construction was booming.  This is a time when designers and engineers took on more than what they could handle and didn’t deliver on all the projects they took.  In addition, he said, that claims “tend to be large.”

Chief underwriting officer at Hiscox USA, Gary Head agrees that the entire Professional Liability market, especially the A&E market has been experiencing signs of hardening for a few years now.  He feels that prices are still not where they need to be: “Unfortunately, we aren’t seeing an increase in rates to the extent that we’d like to.”

According to Tom Miller, senior vice president of brokerage at Lockton, the largest A&E players are seeing the stiffest rate increases.  Thanks to the financially strong market, middle market business (design firms whose revenue is less than $25 million) is still highly competitive.  He said, “There are 60-odd carriers that compete for A&E business.”

Source: www.propertycasualty360.com

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