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.
How does weighted revenue fit into E&O premiums?
Revenue from different professional services may not represent the same underwriting exposure. That’s where weighted revenue can matter. An insurer may evaluate a firm’s revenue by discipline or service category instead of treating it as one number.
What if my E&O premium increased but revenue stayed the same?
A premium change doesn’t necessarily mean revenue increased. The insurer may be evaluating other factors in the current submission or renewal:
- 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. Confirm the reasons for a specific increase with your broker or insurer rather than assuming revenue explains it.
Example
Two engineering firms each report $2 million in revenue and request the same limits. The first firm does mostly lower-hazard consulting and has a clean claims record. The second firm does more structural and geotechnical work, relies more on subconsultants, and has had a significant claim.
Both receive quotes from the same carrier. The second firm’s quote is higher, and the broker explains the difference by walking through the submission: disciplines, project types, subconsultant use, and claims history. Revenue was the same, but the underwriting picture was not.
What to check when comparing your E&O premium
Before you assume revenue alone drove an increase, review the following:
- Has the firm’s revenue changed?
- Has the mix of engineering disciplines changed?
- Does the firm have 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 describing your services, projects, claims history, and requested coverage. This can show whether the difference comes from your exposure, the policy structure, the underwriting approach, or something else.
The explanation should rest on the actual submission and policy terms, not a general statement that rates increased.
Related questions
Is engineering E&O priced only on revenue?
No. Revenue can factor into professional liability underwriting, but carriers may also consider disciplines, project types, claims history, experience, geography, and other factors. Methods differ by insurer.
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, or underwriting methodology may affect pricing. Ask your broker to identify the specific factors behind your renewal.
Which engineering disciplines can affect professional liability pricing?
Structural, geotechnical, mining, and other complex services can present different considerations from other 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 claim severity can all matter. Firms with similar revenue may have different project portfolios and different exposure profiles.
Do subcontracted professional services affect underwriting?
They may. Insurers may evaluate the subcontracted services, how the firm manages subconsultants, and the contractual and insurance arrangements involved. The impact depends on the structure and the carrier’s approach.