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Survey Report

Construction Marketplace Realities 2019 – Professional Liability

Risk Control and Claims Advocacy|Insurance Consulting and Technology|Financial, Executive and Professional Risks (FINEX)

March 29, 2019

Professional indemnity/liability is competitive with more products and aggressive underwriting. This year offers an opportunity to procure policies with better terms.

Rate predictions

  Trend Range
Professional Liability Rate Forecast: No change or slightly up Flat to -5%

Key takeaway

Professional indemnity/liability is competitive with more products and aggressive underwriting. This year offers an opportunity to procure policies with better terms.

Contractors and owners can take advantage of a competitive marketplace to procure policies with higher limit structures and better terms. Construction professional indemnity/liability has remained competitive into 2019. There continues to be more than a dozen carriers offering primary forms and several others which provide either primary or excess coverage. Total U.S. capacity is now in excess of $300 million with an additional $150+ million available through London, Bermuda and other international markets.

Contractors’ Professional:

Consistent with 2018, we anticipate rates for 2019 contractors’ annual practice renewals to remain flat to -5% or more, assuming good loss experience. Many contractors have taken advantage of market conditions and increased limits with favorable terms given the aggressive environment.

Due to competition in the marketplace, coverage terms continue to expand as carriers try to differentiate themselves in a crowded market. Product enhancements are consistent with the evolution of technology, delivery methods, and contractual terms and conditions. Protective indemnity and rectification coverages are now inclusive in standard forms offered by the key carriers, but terms and limits need to be carefully analyzed as they can vary considerably from market to market. Technology services have become a defined coverage component in the market in response to the changing exposures technology has presented from a professional liability perspective. Additional notable expansions include a few carriers offering sub-limits for “defense outside the limit,” and even one carrier offering per-project aggregate limits — both traditional general liability coverage capabilities.

Owners’ Protective Professional:

As project values continue to increase ($500M to $1+ billion-dollar projects becoming common), the corresponding risk of professional liability losses arising from construction and design professionals increases as well. Construction owners are very focused on this risk. Many contractors and design professionals do not carry limits which adequately address these now larger exposures and, as a result, owners are routinely purchasing owners’ protective professional indemnity (OPPI) policies to allow for further project protection.

The marketplace for project-specific OPPI provides limits which attach above those contractually required of contractors and design professionals. This is a cost-effective way to build significant project-specific professional limits and has become the main alternative to expensive project-specific A/E policies. Traditional project-specific professional liability policies which cover all design risk on the job, can still be obtained, but typically are not put in place given the cost efficiency the protective products provide. Interestingly, while project values trend upward, we are also seeing increased interest in owners’ protective professional for much smaller projects (down to $50M), driven primarily by market capacity and the product’s cost effectiveness. In addition, there continues to be increased interest in rolling programs for owners engaged in regular construction activity.

Additional notable trends

  • Late notice/reporting continues to be the leading cause for denial of claims, and it is important for clients to do an internal claim sweep at each renewal for any known circumstances or claims to avoid coverage impacts.
  • Often rectification coverage requires carrier approval prior to action; it is important that clients recognize that these costs cannot be incurred prior to such approval, in order to preserve coverage.
  • Residential projects continue to be the loss driver for professional liability insurers. This has created a small market of carriers willing to offer project-specific products to contractors, design professionals and owners. Condominiums are particularly challenging.
  • Claims associated with civil engineering, such as firms providing geotechnical and structural professional services, are emerging as a significant concern of professional liability insurers.
  • Professional claims in general are on the rise as the product matures, driven partially by the litigious environment in the U.S. and the adoption of the product by many more construction firms and owners over the last 15 years.
  • Project-specific policies can now offer 10-year extended reporting periods post-substantial completion of a project. This takes the reporting period out through, or close to, the statute of repose in most states. At this point, it is unknown what impact these longer coverage periods may have on losses or market stability, as it takes years for these long tail placements to fully develop or establish any pattern of predictability.

In summary, construction professional indemnity/liability is very competitive with a growing product suite and aggressive underwriting. This year continues to offer opportunity for contractors and owners to take advantage of the competition to procure policies with higher limit structures and better terms to protect their balance sheets from the complicated claims associated with professional negligence losses.

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