Factors That Affect Architects and Engineers Professional Liability Premium

Architects and engineers do everything from designing a building to constructing it. Failure or negligence on their part can result in third-party injuries, infrastructural issues, financial losses, and property damage. So, it’s essential for them to have professional liability insurance for their businesses.
Errors and omissions or professional liability insurance protect professionals against claims of omissions, errors, and negligence in their designated duties. Note that the premiums differ for every policy and every business design discipline. So which factors influence these premiums? We’ll discuss this in the guide below.

Why Do Architects and Engineers Need Professional Liability Insurance?

Architects and engineers require professional liability insurance for several reasons. The most
important of these is legal protection.

In case of a lawsuit, the insurer can cover everything from expert witness fees and settlements to court costs and attorney fees.

Secondly, professional liability insurance is also a regulatory or client requirement in many instances. For example, a government project will only hire architects and engineers with appropriate insurance.

Architects and engineers also work on complex projects that carry many internal and external risks. Regardless of the attention to detail, there’s still a risk of error or mistake.

Professional liability insurance acts as a safety net in these instances, keeping these professionals safe from financial and legal tolls.

Which Insurance Do Architects and Engineers Need?

The premiums for architects’ and engineers’ professional liability insurance policies depend on
several factors. These include services, project nature, services offered, the number of employees, discipline, and risk management. Let’s look at these factors individually.

Discipline

The discipline or type of building design service you provide will impact your premium. Here are some common building design disciplines:

Architect
Building Inspector
Civil Engineer
Project Manager
Control System Integrator
Industrial Engineer
Interior Designer
Land Surveyor
Landscape Architect
Transportation Engineer
Draftsman
Electrical Engineer
Environmental Engineer

For instance, structural and civil engineers face more lawsuits than other engineers. So they have to pay higher premiums. The same applies to industrial engineers, building inspectors, transportation engineers, and landscape architects.

On the other hand, project managers, interior designers, and draftsmen face fewer risks since they’re not directly involved in projects on the ground. As a result, they have lower premiums.

Project Nature

The project’s nature mainly involves its scope and complexity. Let’s compare two scenarios.
Engineering firm A is working on a transportation bridge to facilitate commutes for 20,000 vehicles daily. Meanwhile, firm B is creating a parking lot for a hair salon. The project’s nature mainly involves its scope and complexity. Let’s compare two scenarios. Which of the two has a high-cost and high-risk project? The former. So, they’ll have to pay higher premiums too.

Here are some high-risk projects that warrant high premiums:

Chemical plants
Bridges
Airport runways
Apartments
Processing, manufacturing, and production buildings
Dams and levees
Hospitals Meanwhile, the follower construction projects carry lesser risk:
Casinos
Parking lots
Offices
Warehouses
Playgrounds and parks

Level of Involvement

The level of involvement refers to the actual tasks an architect or engineer does in a project.
Let’s say Firm A wants to get professional liability insurance. The insurer will want to know if they only create blueprints for construction projects or if they also supervise the process. Ultimately, the latter will come with a higher premium. Now, if the firm also builds the structure, its premium will increase even more. As a rule of thumb, the more actively involved an engineer is, the higher their premium will be.

Number/Types of Personnel

Before your insurer chooses a premium, they’d want to know:

How many people work at the firm/agency?
How long have the employees been working at the firm?
Which positions are they in?
How many people are employed in a specific position?
How many of these employees are licensed?

All these factors decide what your premium will be. Insurance companies see a lack of licensing and experience as a risk. If you work with unlicensed employees, only have a few supervisors, and have only recruited your team recently, you’ll have to pay more every month.

Similarly, a larger firm will have higher premiums since the insurer has to cover the risk of error and negligence on more people’s part. Meanwhile, smaller businesses have lower premiums. But they may still have to pay more due to a lack of expertise and fewer people in supervisory roles.

Financial Information

Architects and engineers with a decent financial standing will also get a lower premium. Your insurance company will look at your assets, income, and debt level to decide a premium amount.

Your premiums will likely be lower if you have an impressive cash flow and zero debt. But if you seem to be in hot waters financially, expect a higher premium.

Client Type

Do you work on federal government projects or provide services to contractors and developers? The insurance company needs this information to determine your premium.

Suppose you work as an engineer on government projects. It’s a well-known fact that
government projects are mostly high-cost ventures with a significant risk level. That instantly raises your premiums.

But what if you work as an architect for design professionals? You only make the blueprints and don’t do anything on the construction site. In this scenario, you don’t carry as much risk, resulting in lower premiums.

How to Lower Your Professional Liability Insurance Premiums?

Small architectural firms and solo engineers often find it hard to pay a high premium. Here are some ways to tackle this:

Clean Record: Previous claims can affect your policy’s rate significantly. So, keep a clean record to prevent being flagged as a ‘risky’ business.
Deductible Limit: If possible, select a higher deductible limit. It is the amount you’ll pay out of pocket before liability insurance kicks in. A higher deductible will lower your
premium amount.
Shop Around: Ask your agent to get quotes from at least five insurance companies before settling for one.

Conclusion

How complex and high-risk the project is, how involved you are, the level of experience you have, the type of clients you work with, and any prior claims you’ve had will determine your professional liability policy premium.

Remember, there’s no one-fits-all in insurance. Rather, you have to choose a policy that works for you. Don’t hesitate to customize policy details, ask questions, or shop around to find the most cost-effective policy.

POSTED ON: Policy Insights

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