How the Economy Is Altering Architect/Engineering Insurance Buying

Architects and engineering (A/E) firms, construction professionals and the insurance carriers that serve them are facing unique challenges in this turbulent economic environment. SmartRisk surveyed professional liability insurance carriers to find out how these providers are managing their own risk and the challenges they see in this economic climate.

Buyers’ Behavior

Based on the survey of 17 specialty A/E professional liability insurance providers, it is clear that A/E firms have made changes in their insurance purchasing behavior. Many firms are taking on more risk and allowing economics to be the driving force in decisions. The survey found:

• 82% of the professional liability insurance providers indicated A/E firms are accepting more risk due to economic conditions.
• 73% of the carriers indicated firms are accepting more risk by not purchasing insurance, lowering insurance limits and increasing deductibles that may be outside their financial capability.
• 35% of the survey respondents said the economic climate has increased claims while the same percentage said no change.
• 45% of the carriers indicated rates for 2009 and 2010 remain the same; others citing 5-20% increases and/or decreases.

Carrier Services

Professional liability insurance carriers vary in their offerings. SmartRisk’s survey found:

• 71% of providers offer pre-claims assistance at no cost to the insured while 11.8% offer no pre-claims or limited assistance.
• 53% of the providers offer risk management services to all firms.

A/E firms should know exactly what they are paying for when purchasing insurance. There are no-frills providers and others offering a variety and depth of services.

An A/E firm with a claim ought to have a professional to assist, especially in this period of litigation. Carriers’ risk management offerings vary from in-house training, annual conferences and online training to no services. Certain providers offer credits for any risk management training while others do so for their own sessions.

Premiums should reflect the differences in offerings and A/E firms should know the specifics of carriers. A/E firms should not select insurance based on premium cost alone.

Finally, risk management, performance and profitability go hand and hand. Firms that have effective risk management programs have improved performance and profitability.