Engineering Inc. - January/February 2009 - 26

Particular exposures That Might Lead to Higher rate Increases Than in recent years 6.25% International Projects 6.25% Public School Projects � While recouping costs through litigation may become more likely, Kate Enos Frownfelter, construction program manager at Victor O. Schinnerer & Company, Inc., urges firms to weigh lost fee revenue against the resources needed to defend against a claim and consider negotiating instead. Premium Trends � � � � � � 25% No New Exposures 43.75% Residential Homes and Condominiums 6.25% LEED Construction 6.25% Land Surveyors 6.25% Other Insurance premiums have trended flat to downward over the past several years. “Going into the interviews, there was a lot of capacity and a lot of capital” available to support PLI for design firms, Farrar says. Corbett says at least two new carriers are planning to enter the market, adding even more capacity and creating “tremendous options for A/E firms.” Such competition normally would drive premiums lower, at least for “A” accounts, says Sullivan. But that pot is shrinking; in today’s environment, capital requirements and economic pressures make growth difficult or less desirable for many carriers. Going forward, carriers must balance the loss of revenue from investment portfolios—a key component of insurance premiums—as well as tighter credit markets and losses from recent hurricanes. Carriers Source: ACEC’s 2008 Professional Liability Insurance Survey of Carriers I f you are going to change carriers in search of a lower premium, make sure that the carrier has shown a commitment to the PLI market. SCOTT MILLER a/e ProNet expect the economy to drive capacity and capital lower and predict the market could “turn hard,” though many carriers do not expect premium increases until after 2009, according to Farrar. The picture is further complicated because premiums correlate to revenue. Carriers use simple or weighted averages of past and current billings and future projections to predict liabilities during the policy period. Firms should start to see some decrease in premiums once they have had “more than one year in a row of billings that decreased from the prior year,” Duffett says. But a firm coming off a good year and projecting a dismal 2009 might not. Some of the carriers say that now is not the time to save money on PLI, as it’s risky to reduce insurance limits or increase deductibles in a time of heightened litigation. Firms that make such decisions will take the hit if they face a claim. Some carriers also believe that deductibles are currently where they should be, after increasing from previous levels considered too low. Still, firms considering higher deductibles today might not enjoy the premium discounts they expect. Since legal fees for most PLI claims run above $10,000, Duffett says doubling your $5,000 deductible is not likely to eliminate any claims. William Farran, practice leader for design professionals at Travelers, says it also could invite scrutiny of a firm’s financial statement to ensure it can cover a high deductible. “The key point regarding high deductibles is that a firm pays a separate deductible for each claim,” says Scott Miller, president of a/e ProNet. “It becomes a question of whether a firm can weather the high deductibles if it has several claims in one year.” Changing carriers also invites a measure of risk. In addition to a potential gap in coverage, a switch could mean a loss of longevity credits. And a low price offer intended as a sweetener could lead to higher costs down the road. “Ask yourself, what besides the price is the carrier giving you?” Frownfelter says. Miller also cautions that carriers that are new to the market might attempt to buy business by offering a lower premium, only to vacate the market a year or two later. “It takes five years for a carrier to determine if it is underwriting profitably and successfully,” he says. “If you are going to change carriers in search of a lower premium, make sure that the carrier has shown a commitment to the PLI market.” Risk Partner It’s a good idea, says Corbett, to select an insurance carrier on the value of its services, not its price. “You want to find an insurance carrier that will help you in managing and mitigating risk and liability exposures,” he says. Risk mitigation helps the carrier and the design firm by improving overall profitability. Albert Rabasca, director of industry relations at XL Insurance, agrees. Tempting as it is to set risk management and loss prevention practices aside “and embrace a mode of pure survival,” he says, “when the economy does turn around—and it will— the positions we have all worked so hard for 26 enGIneerInG InC. January / February 2009

Engineering Inc. - January/February 2009

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