Rate stability and product enhancements call for vigilance in risk control and claims
Can things ever get too good in a line of insurance?
Architects and engineers (A&E), as well as other design professionals, are enjoying a sustained buyers’ market for liability coverage.
In its latest annual survey, the specialty brokerage Ames & Gough reports that more than two-thirds of the 17 carriers it surveyed do not plan to increase liability insurance rates for design professionals; the remainder would account for only a “slight uptick” in rates.
“A&E firms remain on the lower end of the [cyber] risk spectrum given their relative lack of personally identifiable information compared to other professionals, such as lawyers or accountants.”
President, Hanover Professionals and Healthcare
The Hanover Insurance Group
At the same time, three-quarters of those insurers are planning for new or expanded cyber coverages, and half are considering new or expanded coverage for aerial drones.
“Overall claims activity has been flat on a year-over-year basis, helping to sustain the coverage line’s profitability,” the report reads. “Along with the competitive market conditions, this helped keep a downward pressure on insurers’ premium rates.”
Market participants will attest to that.
“The A&E market remains soft with significant capacity available and strong competition,” says Gregory Leffard, president of Hanover Professionals and Healthcare for The Hanover Insurance Group. “While it appears some of the typically aggressive markets have turned their focus to rate stability, there are still carriers who remain characteristically aggressive.”
Those observations are echoed by Kevin Collins, senior vice president and underwriting manager for Victor O. Schinnerer & Company. He says that “the current market remains soft, as capacity continues to be there, but we are starting to see tightening around limits, deductibles, and pricing.
“Carriers that have not judged well on premium are starting to see an increase in claims and deteriorating loss experience,” he adds.
Ethan Buckles, a commercial lines producer for USG Insurance Services, Inc., adds, “The market is rather soft and A&E carriers are competing with each other by way of their minimum premiums. For lower revenue classes, such as project managers or building inspectors, rates are often falling below minimum premium thresholds.”
“I expect rates to remain stable indefinitely, as there are no signs of a likely material decrease in capacity anytime soon,” adds Michael De Feo, senior vice president of NIF PRO, part of the NIF Group, Inc.
Despite the competitiveness of the A&E liability market, carriers are achieving premium growth through higher limits and coverage enhancements. According to Ames & Gough, half of its survey respondents reported that insureds commonly choose coverage enhancements upon renewal, and that their insureds are seeking increased limits.
“This trend is being reinforced by rising defense costs and more widespread higher contractual requirements,” the report reads. “Whereas in past years, requirements were [commonly] for $2 million or $3 million limits, design firm clients are increasingly requiring limits of $5 million or $10 million.”
“More and more, we find a greater sensitivity to higher limits. Owners continue to ask for higher limits on projects within their contractual insurance requirements.”
Senior Vice President and Underwriting Manager
Victor O. Schinnerer & Company
“More and more, we find a greater sensitivity to higher limits,” says Collins. “Owners continue to ask for higher limits on projects within their contractual insurance requirements.”
Among the product enhancements cited by Ames & Gough are coverages for supplementary payments, such as expenses incurred before filing a claim, expenses incurred to respond to a crisis, and reimbursement for earnings lost while attending a legal, regulatory, or administrative action.
“Core errors and omissions coverage is being complemented with additional supplemental coverages and enhancements,” says Leffard. “Agents are looking for added benefits for clients, including protection for remediation expenses, withheld client fees, crisis and reputation events, drones, first-party cyber, and pre-claims assistance.”
Travis Lankerd, a brokerage underwriter with JM Wilson, notes that “several markets we work with have begun to offer professional liability and general liability packages for A&E classes.”
He adds, “A number of products that we have seen have been broadened to not only account for the technology professional services exposures, but to address privacy breach exposures as well.”
A place for cyber?
As for cyber risk, Leffard says that “A&E firms remain on the lower end of the risk spectrum given their relative lack of personally identifiable information compared to other professionals, such as lawyers or accountants.”
The level of cyber risk is changing, he adds, as design firms rely increasingly on advanced technology to do their jobs. In particular, he notes, “The industry is seeing an increasing exposure to ransomware, in which a firm’s data is held hostage until a payment is made to release it.”
According to Collins, “Offering this coverage to every client is becoming an imperative to prevent E&O claims. We see the frequency of these claims only increasing,” he adds.
While insurers serving design professionals acknowledge the need for them to have cyber coverage, it remains a question whether an A&E professional liability policy is the place to provide it.
Cyber liability coverage in professional liability policies is typically limited compared to that available in stand-alone cyber policies, reports Ames & Gough. As a result, “more and more firms opt for stand-alone policies, which provide an expanded breadth of coverage and typically can be purchased at reasonable premiums.
“In addition,” the report states, “securing a separate policy can help preserve the limits under a design firm’s professional liability insurance policy.”
“All insuring agreements within a cyber policy play an important role,” says Lankerd. “A firm seeking cyber coverage may want to consider products that encompass coverages for third-party liabilities—including claims expenses, settlements, and damages—plus first-party costs and cybercrime coverages currently available in the market.”
“A number of products that we have seen have been broadened to not only account for the technology professional services exposures, but to address privacy breach exposures as well.”
That breadth of cyber coverage is unlikely to be available in an A&E professional liability policy.
“Add-on cyber coverage is becoming more common, and the coverage is growing broader, although at a slower pace than the stand-alone cyber policy market,” says De Feo. “Generally, we recommend an independently negotiated [cyber] policy, with copious insuring agreements, sub-limits set at their maximum threshold, and the limits of liability dedicated to cyber risks.
“We only endorse cyber as an add-on for a client with no budget for interest in purchasing separate cyber coverage, and only if there was no compromise or sacrifice with regard to the E&O,” he adds. “Any cost associated with add-on coverage would be better allocated towards the purchase of a separate [cyber] policy.”
In a crowded market, agents and brokers can compete effectively by thoroughly understanding a design firm’s unique business and operational profile and the risk that entails.
“There are abundant programs available for this class,” DeFeo says. “We encourage thorough marketing and submission of most risks to both insurance companies and program managers. Insureds should take care to be represented by agents and brokers with a strategic plan to access multiple markets.”
“We see growth in specialization and increased focus on creating programs to meet the needs of specialized firms,” says Collins. As an example, he cites Schinnerer’s recent creation of a policy for materials transparency consultants, who often work with architects to provide consulting on the composition of materials to be used in green construction. “Finding ways to effectively address the niche needs of consultants in this area is a real requirement,” he notes.
For more information:
The Hanover Insurance Group
USG Insurance Services, Inc.
Victor O. Schinnerer & Company
Joseph S. Harrington, CPCU, is an independent business writer specializing in property and casualty insurance coverages and operations. For 21 years, Joe was the communications director for the American Association of Insurance Services (AAIS), a P-C advisory organization. Prior to that, Joe worked in journalism and as a reporter and editor in financial services.