Legal claims against engineers force rise in insurance premiums

The major professional liability insurance program for engineers in Canada has had so many claims made against it, it has sustained severe losses for the last 10 years. A report in Encon Group’s April 2002 newsletter says that an independent audit of the National Professional Liability Insurance Program found the program has performed so poorly, the sponsors are having to raise the premiums.
The National Professional Liability Insurance Program was begun in the mid-1960s as a partnership between insurance company ENCON and the two major engineering organizations: the Association of Consulting Engineers of Canada and the Canadian Council of Professional Engineers.
Derek Holloway of Encon writes that at the time the program was begun, and again in 1987, Encon was the only insurer willing to offer coverage to engineers. All the other insurers had fled the market.
To administer the program, the three organizations have a Joint Insurance Committee which meets with Encon twice a year to review the program results. This year, the committee asked an independent actuarial firm to review the performance and assess the rates.
It’s widely believed that the recent so-called “leaky condo” problem in British Columbia had been a severe drain on the insurance program’s resources (hundreds of building owners sued B.C. contractors and consultants for poor performance). However, Holloway says that neither this nor the events of September 11 are totally to blame. In fact, he writes, analyses show that the claim costs cover all engineering disciplines, “regardless of the type of work performed.”
As a result of the shortfalls Encon began increasing rates in 2000, and more significantly in 2001. Rates remain, however, on average still lower than they were10 years ago. Also rate increases have been based on loss experience so that companies who don’t drain the system aren’t penalized.