Ames & Gough Survey: Despite construction sector’s resiliency during pandemic, insurers concerned over prospects for sustained growth
WASHINGTON, DC – As the U.S. construction industry remained resilient during the COVID-19 pandemic, most insurers providing architects and engineers (A/E) professional liability insurance achieved varied premium growth last year. Yet, worsening claims experience is prompting most insurers to seek larger rate increases, according to a new survey by specialty insurance broker Ames & Gough.
As they look ahead in 2021, nearly all insurers in the Ames & Gough survey of 20 leading insurance companies (which, on a combined basis, represent a significant percentage of the overall marketplace providing professional liability insurance to architects and engineers in the U.S.) are planning to raise rates. While more than half (57 percent) still seek only modest increases of up to 5 percent, one in four now plan to raise rates by 6-10 percent and one in five seek increases above 10 percent.
“Given deteriorating claims experience and uncertainty heading into 2021, professional liability underwriters are pressed for ways to balance growth and account retention with their profitability goals,” said Joan DeLorey, senior vice president and partner, Ames & Gough and co-author of the survey. “That’s driving some insurers to look not only at targeted rate increases, but also to consider raising rates across their entire book.”
Higher claims severity a concern. Nearly half the insurers in this year’s survey reported their claims experienced worsened in 2020; the remaining insurers indicated their claims were about the same as the previous year. Insurers were particularly concerned about a trend toward greater claim severity, especially in connection with high-risk projects and disciplines.
One in four insurers surveyed reported having more claims associated with certain project types, such as residential and infrastructure. Meanwhile, the insurers singled out structural engineering, architecture, geotechnical and mechanical engineering as disciplines with greater claim severity.
Not surprisingly, insurers’ largest claims involved bodily injury, design defects, property damage or construction delays. Most insurers surveyed paid a multimillion dollar claim in 2020: 45 percent paid a claim between $1 million and $5 million, and one in four paid a claim exceeding $5 million, including 10 percent paying a claim between $10 million and $20 million.
“We’re still seeing some competition in the marketplace, which is good news for design firms with clean loss histories, lower risk disciplines, projects, and sound risk management,” said Jared Maxwell, vice president and partner, Ames & Gough and co-author of the survey. “However, all indications point to 2021 being a year when more buyers see higher rates for their professional liability insurance.”
One area of the market with some evidence of tightening involves insurers’ responses to the increasing number of requests for higher liability coverage limits. The survey found higher limits remain available, but are now subject to greater scrutiny.
“While higher limits of $5 million and above are available, these requests often must be thoroughly vetted by the insurers,” said Mr. Maxwell. “In these circumstances, design firms might check with their clients to see if the required limits align with the project risk or if they’re disproportionate given the scope of work.”
With respect to their underwriting assessments, 95 percent of the insurers surveyed cited structural engineering as the top discipline in terms of risk, followed by geotechnical engineering (75 percent) and architecture (40 percent). Other areas of concern for insurers from an underwriting standpoint include fast track and designer-led design/build project delivery, construction complexity with increased costs, and public-private partnerships.
To obtain a complimentary copy of the Ames & Gough Survey, PLI Market 2021: As Claims Experience Deteriorates, Insurers Seek New Rate Hikes, email firstname.lastname@example.org.