Engineering Inc. - July/August 2008 - (Page 20)

I ’ve seen a slight uptick in claims, but nothing extraordinary. AlBert rABAsCA Xl Design Professional still could drive rates lower. Carriers, however, likely will not know for four to five years whether the underwriting decisions they make today will result in profits. Deductibles, Claims services for the sake of a lower premium. Chuck Kopplin, principal at Graef, Anhalt, Schloemer & Associates and former chair of ACEC’s Risk Management Committee, says firms have yet to heed that advice. “Of the 13 percent of firms that switched carriers last year, it’s likely the majority were lured by the promise of lower premiums,” says Kopplin. Still, Katherine Enos, senior vice president at CNA/Schinnerer, says the current PLI market is “pretty stable.” Enos says construction firms are making smart growth decisions and carriers “have really begun to price this industry” appropriately. Pressure Mounting on Underwriters Though most deductibles held steady through 2007, about 15 percent of responding firms increased deductibles. That compares with 14 percent that reported increases for the same time frame in 2006. But that trend cannot continue indefinitely, cautions Kopplin, who points out that it is not always economical to shoulder higher deductibles for the benefits of lower premiums. Welbel says the persistent soft market has driven deductibles lower than the 1 percent to 2 percent of revenues that underwriters typically are comfortable with. Figure 1 Dixon says low deductibles can adversely affect a firm’s loss history by shifting too much of the burden of paying claims to the carrier. “It’s wiser to share the risk, rather than be tempted by lower deductibles, because any strike against you stays within your loss history for five years,” she says. Claims, meanwhile, are steady to slightly up, with 59 percent of respondents reporting no claims in F.Y. 2007, and just 2 percent reporting instances of 10 claims or more. Albert Rabasca, director of industry relations for XL Design Professional, says “I’ve seen a slight uptick in claims, but nothing extraordinary.” A slow economy makes all players in major design and construction projects “less tolerant of things like delays and increases” and more likely to sue to recoup losses, notes Welbel. Number of personal liability claims made against Member Firms in F.y. 2007 Response Percent 0 1 2 3 4 5 6 7 8 9 10 2% 2% 1% 0% 0% 0% 0% 2% 0 10 20 6% 10% 18% 59% But the pressure is mounting on underwriters. Genecki says inflation drives insurers’ operating costs up 4 percent to 6 percent year after year. “At some point, the rate we’re getting on our book of business has to take that into account,” he says. The good news is that some of those losses can be recouped from the investment income on today’s premiums, which would not be paid out as claims for two to three years. But a weak stock market and low interest rates mean underwriters no longer have the same cushion to fall back on. Welbel says underwriting losses might already be creeping in, and a softening economy, which tends to drive up claims, could further impact profitability. Travelers’ actuaries say rates are very near the bottom, while Genecki says competition 20 ENGINEERING INC. JULY / AUGUST 2008 More than 10 Response Count 30 40 50 60 Figure 2 Cause of Claims 12% 12% 13% 26% 23% 13% Project Management (lack of training, management of human or technical resources, etc.) Contract (contract language, scope of services, no written contract, etc.) Communications (breakdowns when conflicts arise, documenting changes in scope, project team not aware of scope, etc.) Client/Project Selection (QBS vs. cost proposal, client not knowledgeable of construction, client/project financial strength, etc.) Error or omission of a technical nature Other Source: 2008 Professional Liability Insurance Survey.

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Engineering Inc. - July/August 2008 Table of Contents From ACEC to You News & Notes Market Watch Legislative Action Congressman Kendrick Meek Going Global 2008 Professional Liability Insurance Survey Bridging the Gap 2008 Convention Wrap Up 2008-2009 Executive Committee 2008 Fall Conference Primer Business Insights Members in the News One on One

Engineering Inc. - July/August 2008

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