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BUSINESS NEWS ARCHITECTS & ENGINEERS SEE PROFESSIONAL LIABILITY INSURANCE RATES FLATTEN AMID INTENSE INSURANCE MARKET COMPETITION Although a slim majority of insurance companies providing architects and engineers professional liability insurance saw their rates stabilize in 2016, nearly one in three experienced modest decreases in rates. A new survey by insurance broker Ames & Gough finds that market competition and favorable claim results are combining to hold premium rates down. In fact, most insurers reported they are looking to keep rates flat this year to retain or expand their business. According to the Ames & Gough survey of 19 leading insurance companies (which represent more than 80 percent of the overall marketplace providing professional liability insurance to architects and engineers in the U.S.), premium rates remained flat in 2016 for 53 percent of the insurers, while 32 percent saw rates decrease and 16 percent reported higher rates. By contrast, in 2015, 38 percent had rate increases, while 57 percent had flat rates and 8 percent reported lower rates. Last year, no rate increases achieved by any insurer in the survey exceeded 5 percent; and decreases ranged from below 2 percent to between 6 percent and 10 percent. Interestingly, at the start of 2016, no insurers surveyed expected to lower rates. Additionally, the actual increases achieved in 2016 by insurers planning to raise rates at the start of the year fell slightly short of expectations. “As stable to improving claims experience continues to make this line of coverage

profitable for insurers, more insurance companies are entering the marketplace or looking to expand their business,” said Dan Knise, president and CEO, Ames & Gough. “Besides holding the line on rates for design firms with good loss experience and favorable risk profiles, some insurers are now expanding what they’re willing to cover.” Specifically, some insurers are adding endorsements for cyber risk to their professional liability insurance policies for design firms and considering new endorsements for liability risks related to drone usage. Nonetheless, in evaluating the new cyber insurance available under their professional liability policies, Knise explained that stand- alone cyber insurance policies typically offer more robust protection against first-party exposures. The survey also found that insurers are maintaining underwriting discipline and placing greater emphasis on claims experience. This year, 95 percent of the insurers surveyed identified recent claims experience as a top factor for raising a specific firm’s professional liability insurance rates, a significant jump from the 79 percent citing that factor last year. When asked if plans to develop and repair the U.S. infrastructure raised any concerns regarding A/E professional liability exposures, 63 percent of the insurers surveyed cited the failure of design firms to adhere to effective contractual best practices when negotiating new projects, 53 percent pointed to firms accepting contractual responsibility outside

their expertise, and 32 percent were wary of the inability of design firms to effectively assess and manage subconsultants. “Even though there’s widespread enthusiasm over opportunities arising from the anticipated investment in infrastructure, design firms still need to maintain sound risk management in evaluating new projects, beginning with reviewing their contracts,” said Joan DeLorey, senior vice president and partner, Ames & Gough. “While the insurance market is competitive, the buyers benefitting the most will be those that maintain high standards for managing risk, including evaluating the risk- reward potential of new projects and knowing how a change in project mix might affect their risk profile and insurance program.” For the second consecutive year, 79 percent of the insurers surveyed reported no change in their overall claim activity compared to prior years; in 2016, however, a greater percentage of insurers (21 percent) than in the past saw their claims experience improve and none had worse experience. Meanwhile, insurers have been carefully monitoring emerging issues. Among the most prominent issues they identified were: judicial rulings that are eroding protections for design firms under state statutes, such as economic loss doctrine (79 percent); evolving project delivery methods, cited by 68 percent; innovation, such as the use of BIM and technology and new construction materials/ methods, and international exposures (each at 32 percent).

CONFERENCE CALL, from page 7

EF: Our organizational structure was our biggest barrier to growth. In 2014, we revamped our structure which has al- lowed us to expand quicker and seamlessly. Prior to 2014, we had a small project team structure. We outgrew those benefits. Our new structure allows us to be nimbler and to quickly react to all size projects. “Boosting our business development and structure has helped us grow from 30 employees in 2014 to roughly 50 employees by the end of 2017. We continue to add services that our existing clients need.” TZL: What’s your prediction for 2017 and for the next five years? EF: The expectation is growth through 2018 followed by a mild recession in 2019. Our market of health sciences con- tinues to grow and we are fortunate to be in one of the larg- est areas in the world for healthcare, health research, and health studies.

environment with working remote options for every em- ployee and software that works from anywhere. It’s im- portant that our employees feel comfortable taking care of their personal lives while also having a successful career. TZL: How do you raise capital? EF: We have a line of credit that is equivalent to 20 percent of our revenue. We have had this financing in place for the past 13 years and are satisfied with our banking terms and relationship. TZL: What’s your preferred strategy for growth, M&A or organic? Give us a synopsis of how your firm effected growth in the recent past. EF: We are a steady growth firm and have grown organical- ly. Boosting our business development and structure has helped us grow from 30 employees in 2014 to roughly 50 employees by the end of 2017. We continue to add servic- es that our existing clients need. Our commissioning and energy and infrastructure services have helped us grow be- yond traditional building design services. TZL: What’s the greatest challenge presented by growth?

THE ZWEIG LETTER April 10, 2017, ISSUE 1195

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