Reinsurance, terrorism and toxic mold concerns push rates increasingly higher.

Professional liability insurance premiums for engineers and architects will continue to rise steadily over the next 12 months, according to a recent survey of 13 leading A/E insurance companies.

The annual nation-wide survey—carried out by the National Society of Professional Engineers/Professional Engineers in Private Practice (NSPE/PEPP), the Risk Management Committees of the American Institute of Architects (AIA), and the American Council of Engineering Companies (ACEC)—compiles information relating to coverage, exclusions, claim trends, and the insurer’s history, among other issues. According to survey results, premiums continue to head higher largely due to losses in the worldwide reinsurance market, ongoing concerns about terrorism, fears over a proliferation of toxic mold claims, and a reduction in investment income. As a result of these financial and security issues, some insurers predict that rates for A/E professional liability will increase as much as 30% in 2003. It was also noted that five carriers have dropped out of the A/E professional liability insurance market, and more dropouts are expected.

Among the survey’s other key findings:

  • A/E firms are going to see significant increases in premiums in 2003. Part is from growth experienced by the firms and another part comes from the increased rates that are required to get carriers back to profitability.
  • Insurers have all but eliminated multi-year policies, except under certain smaller firm programs.
  • Structural and geotechnical engineers can expect higher increases in premium rate.
  • Condominium and multi-family housing projects have a very high exposure. Firms doing work in those areas can expect higher premiums and in some cases coverage may not be available.
  • Some of the carriers are already including terrorism exclusions and mold exclusions in their policies. The mold exclusion language can be very broad. These exclusions can sometimes be eliminated by endorsement and a premium increase.
  • Some carriers have actually gone back to the old pollution exclusion language in their policies. (The insured needs to review policy language carefully.)
  • Claims frequency has remained fairly steady, while claims severity has increased as a result of general inflation and defense costs.
  • Project insurance rates have risen dramatically (50–100%) due to excessive losses. Some carriers are no longer offering project insurance.
  • A/E firms that adhere to good business practices, make risk management and staff professional development an integral part of their business, and have a good claims history are in a better position to negotiate their premium rate.
  • While competition among professional liability insurance companies in recent years resulted in a range of insurance products for A/E firms, regardless of size, some insurance companies are beginning to limit the availability of these products.
  • A/E professional liability insurance policy features vary regarding the level of contract review, pre-claims and risk management assistance, and continuing education provided by insurance companies.
  • A/E firms need to be fully aware of the financial condition of professional liability insurance companies. Many company A.M. Best, Fitch, or other ratings have been or are in the process of being modified as a result of financial losses. This can be a problem for firms that are required by contract to have coverage from an “A” rated carrier.
  • Insurance carriers are increasingly concerned about the possibility of a litigation explosion due to mold-related claims, also known as “Sick Building Syndrome.” While some major carriers have indicated they are not excluding claims resulting from mold, many are closely watching the situation. Some have filed proposed mold exclusion endorsement forms for approval with the appropriate state insurance departments so they can be quickly implemented if necessary.

    “The forecast is for a continuation of the hard market in professional liability. We are probably going to see continued attrition in the market place as more carriers pull out either voluntarily or under financial duress. It probably won’t be as bad as the 1980s but some firms are going to find it difficult to get affordable coverage,” says NSPE/PEPP Professional Liability Committee Chairman Willy Van Hemert. “Insureds are also going to have to be very careful about what is and isn’t covered in the policy. A number of carriers already have exclusions for mold, terrorism, and pollution and some of the language is very broad, possibly excluding coverage for exposures that have normally been underwritten in the past.”

    The survey is conducted annually and includes in-depth interviews with insurance carriers. Thirteen professional liability carriers agreed to participate: ACE-USA, Arrowhead, CNA/VOSCO Insurance, DPIC Insurance, Euclid Managers, Everest, Gulf/Benchmark, Kemper, Lexington, Lloyd’s/Avreco, RA&MCO, XL, and Zurich.

    To download all survey responses and receive more information on liability and risk management topics for engineers, visit