Short answer
Engineering firms with the same revenue can pay different E&O premiums because revenue is only one factor in professional liability underwriting. Two firms with $2 million in annual revenue may pay different premiums based on their services, projects, claims history, and other factors the insurer considers.
A firm that mainly performs lower-hazard consulting presents a different risk profile from one that works on complex structural, geotechnical, or mining projects. Insurers use their own underwriting and rating methods, so the same revenue doesn’t guarantee the same premium.
Why revenue alone doesn’t tell the full story
Revenue helps an insurer understand the scale of a firm’s operations. Depending on the carrier and policy, it can also feed into rating calculations.
However, firms with identical revenue may perform very different professional services. A firm earning $2 million from lower-hazard consulting may carry a different exposure from a firm earning the same amount through complex structural design, geotechnical investigations, or mining-related services.
Revenue shows part of the picture. The work that generates it helps explain the professional liability exposure behind it.
Two engineering firms, same revenue, different risk profiles
Consider two hypothetical firms, both with $2 million in annual revenue.
Firm A: established consulting and design firm
- Mainly performs lower-hazard consulting and design services
- Has an established operating history
- Has limited exposure to higher-hazard project types
- Has favorable claims experience
Firm B: complex engineering services
- Concentrates on structural, geotechnical, mining, or other potentially higher-severity services
- Works on more complex projects
- Uses subconsultants more heavily
- Serves a different client and project mix
Depending on the carrier’s approach, Firm A’s mix of services, experience, and claims history may affect how the insurer evaluates it. Firm B generates the same revenue, but its services and project exposures may raise different considerations.
This doesn’t mean every carrier will charge Firm B more. Insurers apply their own underwriting criteria, and the actual premium depends on the policy, the coverage requested, and the risk assessment. Still, equal revenue doesn’t mean equal professional liability exposure.
What factors affect engineering E&O premiums?
Professional disciplines and project types
The disciplines a firm practices and the projects it accepts can influence how an insurer evaluates its exposure. A firm that specializes in structural, geotechnical, mining, or other complex services may have different potential claim characteristics from one focused on lower-hazard consulting. The relevance of each discipline depends on the services performed and the insurer’s approach.
Claims history
The nature, frequency, and severity of claims may matter, depending on the carrier’s methodology and the information in the submission. A firm with favorable claims experience and one with a history of significant claims may receive different underwriting consideration, even at identical revenue.
Experience and years in business
An established operating history can be part of how an insurer evaluates a firm. Insurers may weigh it alongside factors such as favorable claims experience and limited exposure to higher-hazard project types. The importance of each factor varies by carrier and submission.
Subconsultant usage
Subconsultants can affect how an insurer evaluates a firm’s professional services and contractual responsibilities. An insurer may want to know:
- What services the firm subcontracts
- Which professional disciplines are involved
- How the firm selects and manages subconsultants
- Whether the firm uses written agreements
- How the firm reviews or coordinates the work
- Whether subconsultants carry appropriate insurance
The impact on underwriting depends on the actual setup and the carrier’s criteria.
Clients, geography, and contracts
The types of clients and projects a firm serves can also matter. An insurer may consider contractual obligations, geographic exposure, requested limits, and the firm’s risk-management practices. The importance of these factors varies between carriers and submissions.