In the wake of the 2008 financial crisis, many architect & engineer firms became squeamish about insurance prices because adequate coverage was secondary to survival.
But as the real estate and construction markets continue to bounce back, A&E business is booming. According to Kevin Collins, senior vice president, professional liability at Victor O. Schinnerer & Company, 2017 is the third year in a row that has marked steady growth for A&E firms.
“Regardless of size and geographical area, the growth trend year over year has been roughly 3-4%,” Collins says. “If you’re a broker trying to write this business, whether you’re in Nebraska or Florida or California or New York, generally those clients are growing at a nice clip.”
And that’s good news for you—naturally, when a firm is growing, “the premium exposure is growing as well,” Collins points out. “That provides an opportunity for brokers to focus on firms that not only need the coverage, but are looking in different areas for development.”
Want to get a piece of the action? Here’s what you need to know about this highly competitive space—and what it takes to hold on to clients long-term.
Wading Through Options
For the last few years, the A&E space has experienced unprecedented capacity. Collins says at last count, he had more than 60 competitors between regional and national carriers.
“I’m seeing more and more capacity almost every month,” agrees Nicole Greene, director of brokerage, Professional and Executive Liability Center of Excellence, Burns & Wilcox, who notes that her company has observed more standard markets coming in and absorbing straightforward A&E risks from specialty writers. “We’re seeing rates continue to drop as the wholesale markets continue to try to chase that business, a lot of which is being written direct with retailers.”
Greene summarizes the state of the A&E market in one word: limbo. “Capacity is increasing, rates are dropping and now different players on both sides of that fence are asking, ‘How much do I want to get into that, and when? Should I hold out because rates are still continuing to drop?’” she explains. “Some of these carriers are playing Double Dutch, jumping in jumping out.”
“Over the last two to three years, some of those markets that entered the space in 2010, 2012, 2015 are starting to pull back—either restricting coverages or deciding to get out of the marketplace altogether because they don’t have enough business to support the line,” Collins agrees. “So although there’s a lot of opportunity, there aren’t that many qualified long-term carriers in the marketplace that can provide consistency of claims service.”
The fierce competition makes it “a little more challenging for insurance agents today to write A&E coverage,” Collins says. “You can find it very easily, but when you start to peel it back, if your clients are looking for something other than just a piece of paper to say they’re covered, a lot of these markets don’t provide the full services—risk management assistance, broad coverage or other areas that lead to those long-term relationships.”
When placing coverage for a new client or seeking alternative options for a current one who’s shopping their account, Collins suggests “digging a little deeper” to make sure the coverage “matches up exactly with the client’s needs,” he says. While a client might gravitate toward the policy with the cheapest price, “if you don’t select or refine your offer to those clients over time, chances are something’s going to go wrong with a claim or something’s not going to be covered, and now you’ve got a problem with a client and a reputational issue that you need to battle back from.”
The good news is that in a market as stable as A&E insurance, “the average cost of coverage is more of an independent firm discussion,” Collins says—and “that screams broker engagement and consulting, because now you can have an individual conversation with the firm about what’s driving their business and leading to the pricing.”
Although Jim Schwartz, U.S. A&E focus group leader and underwriter at Beazley, expects rates to remain fairly flat across the A&E industry as a whole, he agrees that most carriers consider “every risk individually. Some will see rate decreases because of performance, loss history or the type of work they do, and others may see some increases for the same reasons.”
In general, count on two factors drive pricing for an individual A&E client:
Project type. Different carriers have different underwriting preferences when it comes to project type, but Collins cites two examples that are notoriously riskier than others: geotechnical civil engineering, which involves assessing the subsurface conditions beneath a worksite and providing a report so a structural engineer can develop a sound foundation; and construction of condominiums.
“With a condominium, you have a building where everyone owns their 800 square feet, but they’re part of a larger building system where some of the developers may not be around over the long term,” Collins explains. “So as the mechanical systems start to fail, as there’s wear and tear within the structure—this is still my 800 square feet, but it’s not lasting as long as I wanted it to.”
The result is often litigation, says Collins, who notes that Schinnerer fields many claims pertaining to this project type.
“Those are just two examples of times when an A&E firm’s decision to get into those areas may change their premium,” Collins says. “It doesn’t mean they shouldn’t pursue those projects—from a business standpoint, it may be great opportunity. But there are some additional insurance costs they’ll have to pay in order to pursue that opportunity.”
Risk management. “A&E clients tend to be very conscientious,” Schwartz says. “They care about doing things the right way, and part of that is staying up on what’s going on from a risk management standpoint.”
And that’s where you come in. Helping your A&E clients develop smart internal practices can go a long way in not only reducing their insurance costs, but also adding value to the relationship.
For example, maybe your client uses verbal contracts only with a select group of clients, and never bothers securing signed agreements. “That can be more problematic for us when the claim is made, because when people start pointing fingers, you don’t have a document or an agreement that confirms the terms and conditions of the contract,” Collins explains.
Or maybe your client advertises a specific A&E product or service on their website that they don’t actually provide. “If you’re advertising that you’re offering those services to the general public, you’re going to technically be held liable for that,” Greene points out. “If a discrepancy were to arise, the client could say the representation of services on the firm’s website influenced their decision to work with their firm. Or maybe the design contract was lighter on verbiage because both parties believed they had a mutual understanding regarding delivery of services. If there was ever any misunderstanding of services rendered compared to what you advertised, that could constitute an advertising injury.”
The A&E firms that want a long-term relationship with their agent and carrier are looking for “a solution provider,” Collins summarizes. “If I’m an agent or broker looking to get started, I want to build my book of business on that platform. It may take a little while to grow that book and it may be a lower plane of growth, but shifting the focus away from the price or transaction will make it more consistent. Over time, it will really pay off.”
Jacquelyn Connelly is IA senior editor.