Lower risk architectural and engineering firms (those that have lower claim frequency and severity, that have strong balance sheets, that are not engaged in more difficult projects such as bridge design or condo work, that have low employee turnover, and that have excellent internal controls that can be clearly shown to insurance carriers) are still reeling in stiff competition amongst A/E insurance carriers.
It is my prediction that in spite of this, insurance carriers will be forced to raise their rates in the next 12 months due to several general market conditions.
Investment portfolios that are performing sub-par and incapable of reaching 15% ROI by the industry (standard performance) will force A/E insurance carriers to increase their rates. Investment portfolios that show significant losses need to be \”market to market\” according to Financial Accounting Standard Board (FASB) requirements.
Most reinsurance covers are negotiated on either July 1st or January 1st each year, and it is expected that reinsurance costs will increase. These higher reinsurance costs or even primary carriers assuming more net risk will cause a decline in desire for more uncertain ventures. All in all, if the risk cannot be passed on to another party or its cost has simply risen, the cost increases will be passed on to the end purchaser.
An increase in frequency of claims as a result of economic decline in the construction industry will cause continued deterioration in the A/E space. Less available financing, decreased tax rolls for projects funded by the government, and aggressive sureties desiring to regain losses are causing many once relatively small issues to turn into all-out litigation. Owners, developers, and contractors that were once flexible about working out problems with the design team are under increased pressure and less capable to do so.
It is my guess that any built environment counsel will see similar trends and hints leading to these conclusions.
Timothy Esler, CPCU, is a Principal with Fenner & Esler Insurance Agency, a boutique insurance brokerage and risk management organization representing architects and engineers countrywide. Tim\’s complete original articles are published in The Zweig Letter.
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Yes, that is true, I agree with you, but I am not sure if there are no other options.