By Samantha Wright
The sky’s the limit, these days, when it comes to professional liability coverage for architects and engineers.
Mike Hill, principal of Denver-based Hill Program Managers, has observed that risk managers and owners in the engineering and architecture sector are requiring higher and higher limits all the time.
Lately, he said, there is a growing trend of small firms being asked to provide large limits so they can work on projects – which can be a problem if they don’t have enough revenue to offset the liability coverage.
“When an account with $100,000 in revenue needs to buy a $5 million limit, it can be a pretty significant cost to them, and an exposure to the carrier too,” Hill said.
Does that mean that smaller firms are out of the running for larger projects?
“It depends on how the contracts are structured – but, yes,” Hill said, adding that “sometimes the owners and general contractors do that by design; they want to make it difficult for a little guy to work with some of the bigger firms.”
Geotech and soils engineering can also be a difficult class to underwrite for professional liability coverage.
“Their projects aren’t very big and their revenue per project isn’t as large, but what they do is really important to the process,” Hill explained. “That becomes a difficult exposure, because a failure in that area leads to a lot of problems in the rest of the construction.”
Architects and engineers aren’t the only business classes facing challenges in the PL sector. John Rafferty, Executive Vice President of Arch Insurance Group US, has observed that professional liability insurance rates are on the rise for law firms of all sizes and areas of practice, due to insurer profitability challenges within the line.
Ironically, the insurance industry also has a growing need to protect itself from professional liability claims. Several factors contribute toward this trend, Rafferty said, including the length of time to mature and lack of visibility along the way with respect to identifying problematic claims, as well as the challenging state-specific protocols required of insurers in denying/handling claims.