Table of Contents 

Architects & engineers: Signs of better times

Underwriters adapt their forms to a changing field

By Dave Willis

Over the past year or so, many architect and engineering firms have seen an end to the revenue declines they'd experienced since the start of the economic slump in 2008. "There had definitely been a drop-off in revenues among the firms we specialize in," notes Rebecca Accardo, program manager for Architects & Engineers and Oil & Gas Consultants at Freberg Environmental Insurance. "Now, that appears to have leveled out a little bit."

She says her firm continues to see consistent submission activity, but growth among some design businesses has been slow in coming. "Some of the independents are struggling," adds Accardo. "They may not be getting the business right now like they used to."

Other firms are doing better. According to Kermit Baker, chief economist for the American Institute of Architects, revenue at architecture firms rose for a number of months before falling off in April of this year. In a news release, Baker says the recent slowdown seems to have hit firms in the Northeast and Midwest hardest. Anecdotes in the release indicate that business is "steady, but far from robust" and that "sequestration has created a huge gap in work" for those that practice in the government sector.

Sam Kravitz, MBA, RPLU, senior underwriter at Insurance Innovators, Inc., says one trend he's seeing in the architects and engineers space involves a shift to more design/build activity. Design/build is a method to deliver a project that features design services and construction services contracted by a single entity, instead of the appointment of a designer for a project and the separate appointment of a contractor. "More general contractors are hiring design staff in-house," he explains.

"Two or three years ago, we saw more of the stand-alone architects or engineers," he adds. "We didn't see as many applications for general contractors or project managers with design capabilities. Today, we are seeing more general contractors and more non-traditional architects and engineers."

Recently, after sending an agent an A&E application for a construction management client, Kravitz had to confirm with the agent that it was, indeed, the correct application and that it reflected a shift in the firm's activities.

Another trend taking place in the architects and engineers marketplace is increased interest and activity in what are described as "green" projects. "We're seeing LEED-certified projects, including projects with green roofs, for example, becoming more and more prevalent," explains Devin Wright-Peterson, senior underwriter at Insurance Innovators, Inc. LEED stands for "Leadership in Energy and Environmental Design" and is a collection of ratings for the design, construction and operation of green buildings.

Insurance concerns

Insuring architects and engineers is seeing a bit of a shift, as well. "In a soft or softening market, design firms expect to see some premium reductions," explains Kravitz. "Of course, when their receivables or revenues go down, they want a reduction then, as well. For the past few years, firms saw their revenues shrinking at the same time the insurance market was soft or softening, so they expected even more of a reduction." And they've been getting it.

Now the insurance market is firming at the same time the downward revenue slide for architects and engineers has slowed or been reversed. "We are seeing revenues starting to go up among our clients and prospective clients," he notes, "and we are actually selling premium increases now."

Accardo has seen insurance pricing start to turn the corner, as well. "We've seen a leveling out of rates and actually are seeing them start to go up," she explains. "Part of that is the market cycle, but part of it is increased claims activity, as well."

She attributes some of the increase in claims to economic conditions. "In tougher times, claim frequency can increase significantly as insureds struggle to handle issues and may turn to their insurance coverage sooner or more often than they normally would," she explains. "Also, in a competitive marketplace, product quality may diminish with ever-increasing workloads and lower bottom-line results."

Accardo says she believes carriers have very little choice but to start pushing up rates. "We're hearing that, although we've not had to do this, some carriers are implementing coverage restrictions, or they're planning to do so," she explains. "Even so, it's still a competitive market."

Kravitz concurs. "We're still seeing more carriers getting into the space," he explains. "We've even seen some large carriers—those with a big presence in the property/casualty arena—roll out what I consider to be some pretty aggressive A&E products."

Even with the potential for coverage restrictions on the horizon, some carriers are expanding what they cover. "Some of our A&E carriers now have the capability of including some pollution coverage," explains Wright-Peterson. "A number of our markets are looking to put the pollution in there where there is a professional exposure.

"Of course," she adds, "it's up to the insured to decide whether they want that coverage in one policy, where their limits may be eaten up a little faster if they have a loss, or whether they'd actually prefer to carry a separate policy and pay the separate premiums but get more limits."

Kravitz has recently seen an architects and engineers policy with a technology add-on. "We have seen some clients—process engineers, for example—that are integrating design into machinery and assembly lines," he explains. "That could incorporate software components, for instance. One carrier started offering coverage for that. And once one offers something, others tend to follow pretty quickly."

Another carrier has come out with a design-build form this year. "They used to just endorse the A&E form, but now they have an actual form for design-build," he says. "We may see more carriers offering something like that going forward."

"We're seeing LEED-certified projects, including projects with green roofs, becoming more and more prevalent. -Devin Wright-Paterson Senior Underwriter Insurance Innovators, Inc.

A role for agents

"Architects and engineers really is a specialty line," explains Mitch Sellett, CEO of Architects and Engineers Insurance Company. "In general, it's best served by specialty brokers who understand the practice of designers. Simply treating it like you would treat auto coverage or workers comp and selling it the same way turns it into a commodity product, which isn't really good for anybody."

He says it's possible to build expertise in the business. "A great way to become educated on the practices of designers is to participate in their professional associations," Sellett explains. "Both the American Institute of Architects and the American Council of Engineering Companies are great forums for people to learn about the craft of design.

"That knowledge will help agents and brokers better understand the issues designers face," Sellett adds. "This increased knowledge will allow them to better assess the risks and align clients and prospects with carriers they believe will do a good job for them."

Kravitz encourages agents to explore where gaps might exist. "For example, those that are not the traditional architects and engineers—the general contractors or construction managers—may not have the professional design coverage," he notes. "We are seeing quite a bit of first-time coverage requests."

He adds, "Talk about pollution and professional." Insureds trust their agents and brokers to make sure they're covered. If the agent doesn't realize there is professional exposure, that could be an issue."

Accardo encourages agents and brokers to be armed with client information when working with underwriters. "Be aware that the carriers are going to ask for more information about the risks than they may have asked in the past," she notes. "Make sure that you know your clients well so you can provide that information."

Wright-Peterson reminds agents and brokers that the market is evolving. "Carriers are responding to trends and to the competitive landscape," she says. "They are keeping track of changes in their clients' businesses and are coming out with policy wording and changes to address the new exposures."

Accardo adds, "It's important to be as knowledgeable as possible about the marketplace and about the products that are available. If you aren't sure of something, call your underwriter."

Kravitz encourages agents and brokers not to ignore the wholesale market. "There may be large, standard carriers offering the coverage, but it makes sense for agents to consider all of their options," he notes. "Wholesalers can access dozens of carriers that know the business and that can offer good coverages and layers, at very competitive rates."

Sellett says, "Anything brokers can do to differentiate carriers by variables other than price is in everyone's best interest. I know that's kind of motherhood and apple pie, but I believe it's important. Consider the carrier's commitment to the space and its track record of writing the coverage responsibly over time. And communicate this with clients when you're helping them select a carrier."

The author

Dave Willis is a New Hampshire-based freelance insurance writer and regular Rough Notes magazine contributor.

CONTACT US | HOME