Short Answer
Because revenue is only one factor used in professional liability underwriting. Two engineering firms with $2 million in annual revenue may have different premiums based on the types of services they provide, the projects they work on, their claims history, and other factors relevant to the insurer's assessment.
A firm primarily performing lower-hazard consulting may present a different risk profile from a firm working on complex structural, geotechnical, or mining projects. Insurers have their own underwriting and rating methodologies, so the same revenue does not 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. It can also be used in rating calculations, depending on the carrier and policy.
However, two firms with identical revenue may be performing very different types of professional services.
An engineering firm earning $2 million from relatively lower-hazard consulting work may have a different exposure from a firm earning the same amount through complex structural design, geotechnical investigations, or mining-related services.
The amount of revenue tells part of the story. The work generating that revenue helps explain the professional liability exposure behind it.
Two Engineering Firms, Same Revenue, Different Risk Profiles
Consider two hypothetical firms, both generating $2 million in annual revenue.
Firm A: Established Consulting and Design Firm
- Annual revenue: $2,000,000
- Primarily performs relatively lower-hazard consulting and design services.
- Established operating history.
- Limited exposure to higher-hazard project types.
- Favorable claims experience.
Firm A has a particular mix of services, experience, and claims history. Depending on the carrier's underwriting approach, those characteristics may affect how the firm is evaluated for professional liability coverage.
Firm B: Complex Engineering Services
- Annual revenue: $2,000,000
- Greater concentration of structural, geotechnical, mining, or other potentially higher-severity professional services.
- More complex projects.
- Greater use of subconsultants.
- Different client and project mix.
- Different overall underwriting profile.
Firm B generates the same revenue as Firm A, but its professional services and project exposures may present different considerations for an insurer.
This does not mean every carrier will automatically charge Firm B more. Insurers use their own underwriting criteria, and the actual premium depends on the policy, coverage requested, and risk assessment.
The point is that equal revenue does not mean equal professional liability exposure.
What Factors Can Affect Engineering E&O Pricing?
Professional Disciplines and Project Types
The engineering disciplines a firm practices and the projects it accepts can influence how its professional liability exposure is evaluated.
For example, a firm specializing in certain structural, geotechnical, mining, or other complex engineering services may have different potential claim characteristics from a firm focused on lower-hazard consulting.
The relevance of each discipline depends on the actual services performed and the insurer's underwriting approach.
Claims History
The engineering disciplines a firm practices and the projects it accepts can influence how its professional liability exposure is evaluated.
The nature, frequency, and severity of claims may be relevant, depending on the carrier's methodology and the information available in the submission.
A firm with favorable claims experience and one with a history of significant claims may receive different underwriting consideration even when their revenues are identical.
Experience and Years in Business
The nature, frequency, and severity of claims may be relevant, depending on the carrier's methodology and the information available in the submission.
- Annual revenue: $2,000,000
- Primarily performs relatively lower-hazard consulting and design services.
- Established operating history.
- Limited exposure to higher-hazard project types.
- Favorable claims experience.
A firm with favorable claims experience and one with a history of significant claims may receive different underwriting consideration even when their revenues are identical.
Subconsultant Usage
The use of subconsultants can affect how a firm's professional services and contractual responsibilities are evaluated.
An insurer may want to understand:
- What services are subcontracted.
- Which professional disciplines are involved.
- How subconsultants are selected and managed.
- Whether written agreements are used.
- How the firm reviews or coordinates the work.
- Whether subconsultants carry appropriate insurance.
Subconsultant arrangements vary, so their 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 works with can also be relevant to underwriting.
An insurer may consider the nature of the contractual obligations, geographic exposure, requested limits, and the firm's risk-management practices. The importance of these factors varies between carriers and individual submissions.
How Weighted Revenue Fits Into the Pricing Discussion
Revenue from different professional services may not represent the same underwriting exposure.
That's where weighted revenue can be relevant. A firm's revenue may be evaluated by discipline or service category rather than treated as one undifferentiated number.
What If My E&O Premium Increased Even Though Revenue Stayed the Same?
A premium change does not necessarily mean your revenue increased.
The insurer may be evaluating other factors in the current submission or renewal, including:
- Changes in professional disciplines or project types.
- Claims history.
- Requested limits or deductible.
- Changes in client or geographic exposure.
- Changes in the firm’s operations.
- The insurer’s underwriting and rating methodology.
A carrier may also change its pricing approach or underwriting appetite. The reasons for a particular increase should be confirmed with the broker or insurer rather than assumed from revenue alone.
What to Check When Comparing Your E&O Premium
Before assuming a premium increase is solely related to revenue, review the following:
- Has the firm’s revenue changed?
- Has the mix of engineering disciplines changed?
- Are there new or more complex project types?
- Are there new or more complex project types?
- Has the use of subconsultants changed?
- Are the requested limits or deductible different?
- Have client, geographic, or contractual exposures changed?
- Can the broker explain what changed in the underwriting submission?
Ask What Changed in the Submission
If your revenue hasn't changed much, ask your broker to walk through the current and prior submissions.
Compare the information used to describe your services, projects, claims history, and requested coverage. This can help identify whether the premium difference relates to the firm's exposure, policy structure, underwriting approach, or another factor.
The explanation should be based on the actual submission and policy terms rather than a general statement that insurance rates increased.
Related Questions
Is engineering E&O priced only on revenue?
No. Revenue can be a factor in professional liability underwriting, but carriers may also consider professional disciplines, project types, claims history, experience, geography, and other underwriting factors. The methodology differs by insurer.
If you perform engineering services through your own firm or independently for clients, review whether a separate professional liability policy is appropriate.
Why did my E&O premium increase even though my revenue didn't?
Revenue is only one possible factor. Changes in project exposure, professional services, claims history, policy terms, underwriting methodology, or other submission details may affect pricing. Ask your broker to identify the specific factors relevant to your renewal.
Which engineering disciplines can affect professional liability pricing?
The disciplines and services a firm performs may influence underwriting. Structural, geotechnical, mining, and other complex engineering services can present different professional liability considerations from other types of consulting or design work. The impact depends on the actual exposure and the insurer's criteria.
Does the type of projects my engineering firm works on matter?
Yes. Project complexity, professional responsibilities, client requirements, and potential severity of claims can be relevant to underwriting. Two firms with similar revenue may have different project portfolios and therefore different exposure profiles.
Do subcontracted professional services affect underwriting?
They may. Insurers may evaluate the nature of the subcontracted services, how the firm manages subconsultants, and the contractual and insurance arrangements involved. The impact depends on the specific structure and carrier's underwriting approach.
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