Rates for Architects, Engineers Going Up: Report

Rates for architects and engineers professional liability insurance, which have been stable, are expected to go up this year, a new study reports.

A number of leading insurance companies offering this coverage expect to raise premium rates in 2011 up to 10 percent on average for both renewals and new business, according to a new survey by Ames & Gough.

The insurers are split in their planning with half expecting to maintain current rates and half expecting to seek increases. However, none said rates will go down in 2011. This represents a shift in the market for the first time in several years.

Among insurers planning rate increases, the expectations ranged from the low single digits to 10 percent or more.

On a combined basis, the insurers in the Ames & Gough survey account for roughly 70 percent of the overall U.S. market for this coverage.

For small and mid-sized architectural and engineering firms, competition among insurers continues to be heavy.

“Recent renewals show that while the overall insurance market for architects and engineers professional liability coverage is stabilizing, newer players in this segment are still creating competition. Smaller and mid-sized architectural and engineering firms are the ones seeing the greatest benefit,” said Dan Knise, president and CEO of Ames & Gough.

The Ames & Gough survey also found capacity to be stable. For any individual qualified insured firm, 20 percent of the insurers can provide up to $25 million in limits, 30 percent can provide a maximum of $10 million to $20 million, and 30 percent can provide up to $5 million. Using multiple insurers, it’s possible to secure coverage upwards of $50 million when necessary.

“While availability of limits is not an issue for design professional firms, the more vexing challenge is to determine the right limits to carry,” said Mike Herlihy, executive vice president and partner in the Ames & Gough Boston office. He said most construction professionals have used a formula that relates limits to their annual billings but some larger firms now carry a “split” limit with their aggregate limit being a multiple of the per claim limit.

As for what transpired in 2010, the survey found that 40 percent of insurers kept their rates flat on average, while 30 percent reported lowering rates.

By a large margin (80 percent), insurers cited recent claims experience as the most significant underwriting factor.