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E&O rates up for architects, engineers, lawyers

Rising professional liability rates

With the possible exception of the cyber market — which remains competitive in the errors and omissions market, at least — large-firm architects and engineers and lawyers are seeing higher rates during their midyear renewals.

E&O rates are not increasing as rapidly as public and private company directors and officers liability rates, “but they’re definitely coming up,” said Greg Flood, New York-based president of IronPro, a unit of Liberty Mutual Insurance Co.

The architects and engineers market is seeing rate increases of about 2% to 3%, said Dan Knise, president and CEO of McLean, Virginia-based specialty broker Ames & Gough. “Some would argue that’s long overdue,” he said. “The market has been so competitive there haven’t been any real rate increases in years.”

With more than 45 underwriters offering the coverage, “competition is holding down rate increases,” especially for small and midsize architects and engineers, he said.

The exception, Mr. Knise said, is the jumbo engineering firms, which are seeing more significant rate increases, in many cases double digit or higher, because of their large losses.

Mickey Estey, San Francisco-based managing director of the E&O practice at RT Specialty Group LLC, said, “The markets are still very good” for smaller A&E firms with “good competition” among the insurers.

Very large firms, however, “are seeing some increases in claims activity on megaprojects,” and “those have been starting to see some rate increases of at least 20%, Mr. Estey said.

“We do continue to see pressure within the A&E marketplace,” said David Egosi, New York-based head of professional risks for Hiscox USA. “It really has been a pretty stable construction marketplace, which tends to mask the true nature and exposure of this particular class of business,” he said.

Insurers are “enjoying loss ratios that are performing much better than what they’ve traditionally seen in this more volatile book of business, but that can turn very quickly if the economy starts to stumble a little bit.”

In the legal malpractice areas, while the insurance for small firms is quite competitive, large firms with more than 200 lawyers are seeing rate increases in the 20% to 35% range Mr. Knise said he said. Driving this is a dramatic increase in severe losses.

Small firms are not seeing the increase the large firms are, said Dennis Mullins, chairman of managing general agent Huntersure LLC in Garden City, New York. “The large firms are seeing a lot more severity, and that’s causing a lot of rate increases now because for over the last probably decade or so they we’ve been seeing flat rates or declining rates.”

“The larger firms are going to continue to see rate increases, and that’s probably going to play itself out at current levels, at least through one renewal cycle.” But if severity increases, “additional increases are going to be required,” he said.

Mr. Egosi said many insurers focus on the “sweet spot” of firms with 25 to 75 attorneys, “where the controls are still pretty good, and they typically specialize or focus on areas that they know and do well without overextending themselves into areas that might not have as much due diligence,” which can be the case with some of the larger firms.

The lawyers professional liability market “is entering quite a turbulent phase,” said Brian Dunphy, senior vice president and managing director at Alliant Insurance Services Inc. in New York, who oversees the brokerage’s management and professional solutions group.

“There are a number of historical participants” that have reduced their capacity because of losses. “There’s a lot of froth in that market,” he said.

Mr. Egosi said attorneys E&O “has always been a more challenging line of business. But there continues to be capital readily available in the space because premiums do tend to be higher when compared to other E&O lines.”

Experts say cyber risk is written on both a stand-alone basis and as part of E&O coverage. In the E&O sector, rates “depend sometimes on what the company’s doing,” Mr. Estey said.

The segment for payment processors, for instance “can be challenging because they handle lots of credit card data,” but “the majority of the time the market’s been pretty soft for cyber,” Mr. Estey said.

Cyber coverage is always broadening, “so that’s probably our biggest challenge today,” said David Norfleet, New York-based senior vice president for Starr Insurance Cos.

“Rate levels have flattened out a little bit,” but at the expense of broadening coverage, so “I’m not sure I can say that’s an honest rate increase,” he said.

Meanwhile, the miscellaneous E&O market is very fragmented, Mr. Norfleet said. Real estate professionals are seeing rate hikes of about 2% to 3%, for instance, while consultants’ E&O is “pretty flat.”



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