Short Answer
An increase in your firm's professional liability premium doesn't necessarily mean the carrier simply raised its rates. Revenue is an important rating factor, but it's only one part of the calculation.
Underwriting may also weigh discipline, project types, location, claims history, and prior or projected revenues, depending on the carrier. That means a 25% increase in revenue doesn't automatically translate to a 25% increase in premium. If a renewal increase looks unusual, the first step is understanding what information the carrier used to calculate it.
Why revenue matters for your A&E Liability Premium
Professional liability exposure generally increases as a firm performs more professional services, so revenue is commonly an important part of underwriting. But carriers don't necessarily treat it as a simple one-to-one calculation. A firm's revenue can increase 20% without the premium increasing by the same amount, because the carrier may be weighing several other factors at once.
What are "weighted revenues"?
Some professional liability programs look at more than one year of a firm's revenue rather than pricing the policy exclusively off a single year. The carrier may assign different importance to different years.
This can explain why the revenue figure underwriting uses doesn't always match last year's actual revenue, this year's revenue, or next year's projection. The exact methodology varies by carrier and isn't always disclosed to the broker or insured.
Why carriers may use multiple years
Architecture and engineering firms don't always grow in a straight line. A firm's revenue might look like $1.5 million one year, $3 million the next, then $2 million, then $2.5 million.
If pricing were based exclusively on the most recent year, premiums could swing sharply up and down as revenue moves. A methodology that considers multiple years may produce a different exposure figure than simply using the most recent annual revenue. Different carriers approach this differently.
Does Revenue Growth cause an equal A&E Liability Premium Increase?
Not necessarily. A firm's revenue could increase 20%, 50%, or even 100% without the premium increasing by that same percentage. The final number depends on the carrier's rating methodology and the other characteristics of the account.
Other factors that can affect your A&E Liability Premium
Beyond revenue, underwriting may also consider:
- Professional discipline (architect, structural engineer, civil engineer, interior designer, etc.)
- Project types and their potential severity or frequency of claims
- Location where the firm performs work
- Claims history
- Changes in operations, such as new services, disciplines, or territories
- How revenue has been reported on current and prior applications
Be careful with revenue projections
Professional liability applications frequently ask firms to report historical and projected revenue. Those numbers should be completed carefully.
For example, if an engineering firm projects $5 million in revenue for a strong year but actual revenue ends up closer to $2 million, that original projection may have affected the exposure the carrier used when underwriting the policy. This doesn't mean firms should underestimate revenue on purpose. It means projections should be reasonable and supportable based on what's known at the time.
Why reviewing prior applications matters
If a premium increase doesn't make sense, don't look only at the renewal quote. Compare the information reported across several years of applications, including actual and projected revenue, professional disciplines, project mix, geographic exposure, claims information, and subcontracted services.
Sometimes the explanation for a premium change becomes clearer once the underlying applications are compared side by side.
A&E Liability Premium Example
An engineering firm receives a renewal showing a significant premium increase. The firm believes its revenue has been relatively stable, but underwriting shows an increase in the revenue exposure being used for rating.
Instead of immediately remarketing the account, the broker reviews several years of applications and compares historical revenue, projected revenue, the carrier's calculated exposure, and changes in project mix. If the carrier's information doesn't match the firm's actual operations, the broker can bring the discrepancy back to underwriting. That conversation may lead to clarification, corrected information, or revised pricing.
Other factors that can affect the premium
Before assuming a renewal increase is final, review:
- What revenue or exposure figure the carrier is actually using
- Whether that figure matches your firm’s current operations
- How your last several applications compare on revenue, project mix, and disciplines
- Whether any claims or circumstances were reported that could affect pricing
- Whether underwriting credits might be available
- Whether alternative markets make sense once you understand the actual driver
Related Questions
If my revenue increases 25%, will my premium increase 25%?
Not necessarily. Revenue is an important rating factor, but premium changes aren't automatically one-to-one with revenue changes.
Why does my carrier ask for several years of revenue?
Some carriers use historical revenue to understand exposure over time rather than relying exclusively on one year.
Can projected revenue affect my premium?
It can. Projected revenue may factor into how underwriting evaluates expected exposure, which is why projections should be reasonable and supportable at the time the application is completed.
Can my broker ask the carrier to reconsider the premium?
Yes. A broker can ask underwriting to review the information used, explain the drivers behind an increase, and consider corrections or available credits. The carrier ultimately determines its own pricing.
Should I change carriers if my premium increases?
Not automatically. Understand why the premium increased and whether the information being used is accurate first. Once that's clear, the incumbent option can be compared against alternatives.
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