The Institution of Engineers, Australia

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arrangements with insurance brokers and advisors to provide services to members. To assist the Institution to gain up to date information about how the crisis has been affecting members, on 31 January 2003, members were emailed a short questionnaire to complete (Appendix 1: Questionnaire). Respondents to whom PI insurance cover was relevant were asked to complete the questionnaire and return it to The Institution by 14 February 2003. Question areas included: " The proportion of engineers not currently covered by PI insurance and reasons for not taking out cover. " Services for which PI insurance has been refused in the last 12 months or new conditions/restrictions imposed. " Services that are no longer offered by engineers, or will not be offered in future, due to rising insurance costs or policy exclusions. " The level of PI insurance cover , premiums and excess payable for the years 2000, 2001, 2002 and 2003. " The impact of increased PI insurance premiums on engineers 9 fees. " Claims in last three years. 569 completed questionnaires were returned for analysis. The margin of error associated with the sample of 569 is +/- 4.0%. This document presents and discusses the research findings. The bases may vary from table to table as non-responses have been filtered out. Institution of Engineers - ii - Russ Knight Research Professional Indemnity Insurance Survey March 2003 E XECUTIVE S UMMARY The research findings reveal that while the amount of PI insurance cover being taken out has not changed significantly over the last three years (up 7%), premiums have more than tripled (up 210%) and excesses have jumped 166%. Twenty-nine percent of engineers surveyed reported that they were not currently covered by PI insurance. The findings indicate that 71% of engineers are currently covered and that a minimum of an additional 2% are still seeking cover for 2003. Cost (46%) and exclusion clauses (28%) are the main barriers to taking out PI insurance. Ten percent of those without PI insurance had been refused cover. Only 9% of engineers have made a PI insurance claim in the last three years. The incidence of claiming was considerably higher among large firms. Very few sole practitioners had made a claim in the last three years (3%). 49% of engineers said that they had been refused cover in the last 12 months, or had some conditions or restrictions imposed on them. There was no correlation between the size of the firm, or the use of risk management strategies, and cover being refused. Project management and environmental engineering were the two services most likely to be affected. Others commonly mentioned were: " Geotechnical engineering " Building inspections " Foundation / slab work " Overseas work " Oil & gas Overall, 29% of engineers were planning to cease or had already stopped offering services either because of rising insurance costs or policy exclusions . Due to rising insurance costs &&&&.. (21%) Due to policy exclusions &&&&.. (18%) Again, project management and environmental engineering were the two services most commonly mentioned. Others of significance were: " Geotechnical engineering " Foundation / slab work " Building inspections " Overseas work " Fair grounds & amusement equipment Institution of Engineers - iii - Russ Knight Research Professional Indemnity Insurance Survey March 2003 The proportion of engineers with PI insurance appears to have increased steadily between 2000 and 2002 (up from 69% to 78%). It declined slightly in 2003 (71% plus at least 2% more still seeking it). The amount of cover being taken out by engineers has not changed significantly since 2000. It has increased from an average of $3.31m in 2000 (excluding outliers 3 see p13) to $3.53m in 2003, a rise of only 6.7% over three years. The average cover taken actually declined in 2003. 2000 to 2001 +5% 2001 to 2002 +2% 2002 to 2003 -1% During this period, premiums have tripled, rising by an average of 210% from $6,780 (excluding outliers) to $21,010. 2000 to 2001 +25% 2001 to 2002 +63% 2002 to 2003 +53% The largest increases in premiums over the last three years have occurred among the following groups: " Victorian firms 320% " Firms turning over $5m+ 265% " Owner/managers 260% " Firms with 10-49 staff 257% Firms using risk management strategies have higher premiums and have experienced larger rises (203%) than those who do not use them (151%). However, there appears to be no relationship between the proportion of government work done and premium increases. Excesses payable have also nearly tripled over the last three years. The average has increased from $8,270 in 2000 (excluding outliers) to $21,970 in 2003, a rise of 166%. The excess payable has risen sharply over the last 12 months (61%). 2000 to 2001 +34% 2001 to 2002 +23% 2002 to 2003 +61% 71% of engineers who believed that their PI premiums had risen stated that they had either already increased their fees as a result (46%) or were considering doing so (25%). Firms practicing in non-metro areas were marginally more likely than others to have increased fees, or to be considering it (80% cf 68% of capital city only firms). 44% of engineers use formal risk management strategies, in particular, larger firms. A quarter of the firms rely on government work for at least half of their revenue (24%). Institution of Engineers - 1 - Russ Knight Research Professional Indemnity Insurance Survey March 2003 R ESEARCH F INDINGS Q9A: Employment Status T ABLE 1.1 E MPLOYMENT S TATUS Total (550) % Owner/Manager of a firm 50 Sole practitioner 39 Employee 11 Q9B: Number of Staff T ABLE 1.2 N UMBER OF S TAFF Total (521) % 0-5 65 6-9 11 10-19 7 20-49 6 50-69 2 70-99 1 100+ 9 Q9D: Annual Turnover of Firm T ABLE 1.3 A NNUAL T URNOVER OF F IRM Total (527) % <$0.5m 64 $0.5m to <$1m 10 $1m to <$2m 9 $2m to <$5m 6 $5m to <$10m 3 $10m + 9 Institution of Engineers - 2 - Russ Knight Research Professional Indemnity Insurance Survey March 2003 S AMPLE P ROFILE Description of Respondent Half of the engineers who returned a completed questionnaire stated that they were the owner or manager of a firm (50%; Table 1.1). The majority of the balance stated that they were a sole practitioner (39%). Only a small proportion were employees (11%). Owner/managers were the most likely to have PI insurance cover (82%). Two out of three sole practitioners said they had cover (65%). Conversely, the majority of employees do not carry PI insurance (35% have cover). Sole practitioners had on average the smallest annual turnover (96% reported a turnover below $0.5m). They were also the least likely to use risk management strategies (29%). Half of the owner/managers came from firms with a turnover below $0.5m (51%). Most of the others had a turnover between $0.5m and $1.99m (33%). Half claimed to use risk management strategies (49%). Employees were the most likely to use risk management strategies (70%). A high proportion of them belonged to firms with a turnover in excess of $10m (68%). Size of Firm Two-thirds of the businesses represented had a maximum of five staff (65%; Table 1.2). Given that 39% were sole practitioners, it can be assumed that 26% employed 2 to 5 staff. A fifth employed between 6 and 19 staff (18%) and 8% employed 20-99 staff. There was a small but significant core of very large firms represented in the sample. Nine percent employed more than 100 staff. Most firms had an annual turnover of under $0.5 million (64%; Table 1.3). However, many large firms were represented in the study, including those with a turnover of over $10m (9%). Q9C: State(s) Firm Practices T ABLE 1.4 S TATE ( S ) F IRM P RACTICES Total (528) % NSW 49 VIC 37 QLD 35 WA 22 SA 18 ACT 12 TAS 10 NT 8 Institution of Engineers - 3 - Russ Knight Research Professional Indemnity Insurance Survey March 2003 Q9E: Location of Firm T ABLE 1.5 L OCATION OF F IRM Total (535) % Capital city 80 Rural or regional area 24 Q9F: Use of Formal Risk Management Strategies T ABLE 1.6 U SES F ORMAL R ISK M ANAGEMENT S TRATEGIES Total (530) % Yes 44 No 56 Location(s) and Area(s) of Practice Survey respondents practiced in all Australian States and Territories, predominantly New South Wales (49%; Table 1.4), Victoria (37%) and Queensland (35%). One in five practiced in Western Australia (22%) or South Australia (18%). About ten percent of firms practiced in the ACT (12%), Tasmania (10%) or the Northern Territory (8%). Most were based in capital cities (80%; Table 1.5) rather than in non-metropolitan areas (24%). Eighty percent of those who practice in non-metro areas only work in those areas. A fifth also practice in a capital city (20%). The larger firms are more likely than others to practice in a capital city and in non-metro areas. Use of Formal Risk Management Strategies Almost half of the respondents claimed to use formal risk management strategies (44%; Table 1.6). This was most common among large firms (turnover $5m+, 86%; 50+ employees, 81%), employees (70%) and firms practicing in Tasmania (67%). Q9G: % of Work Government Related T ABLE 1.7 % OF W ORK G OVERNMENT R ELATED Total (526) % 0-5% 44 5-10% 11 10-20% 12 20-50% 9 50-75% 9 75-100% 15 Institution of Engineers - 4 - Russ Knight Research Professional Indemnity Insurance Survey March 2003 Q9H-i: Respondent is a Chartered Professional Engineer, Technologist or on National Engineering Register T ABLE 1.8 R ESPONDENT 9 S S TATUS Total (541) % Yes 87 No 13 Q9H-ii: Number of Staff who are Chartered Professional Engineers, Technologists or on National Engineering Register T ABLE 1.9 N O . OF CPE, T ECHNOLOGIST OR R EGISTERED S TAFF Total (559) % 0 50 1 17 2 11 3-4 7 5-9 6 10-19 3 20+ 5 % of Work Government Related Nearly half of the sample do very little or no government work (Table 1.7). 44% said that government work represents a maximum of 5% of their turnover. For a quarter of the firms surveyed, government work accounts for 5-20% of their turnover (23%), and for a further 9%, a significant proportion of their business (between 20% and 50%). One out of four firms rely heavily on government work. Twenty-four percent reported that government work accounts for over half of their turnover. This was most common among the following firms: " Large firms (turnover $5m+, 50%; 50+ employees, 54%) " employees (49%) " those with no PI insurance cover (33%) Firms practicing in the ACT (33%) were only slightly more likely than others (23%) to depend heavily on government work. Chartered Professional Engineers, Technologists & Registered National Engineers A large majority of respondents claimed to be a Chartered Professional Engineer, a technologist or registered on the national engineering registers (87%; Table 1.8). When respondents were asked to record the number of staff in their firm who were a Chartered Professional Engineer, a technologist or registered on the national engineering registers, half said that none fell into this category (50%; Table 1.9). 29% reported that there were one or two staff so qualified or registered. Institution of Engineers - 5 - Russ Knight Research Professional Indemnity Insurance Survey March 2003 Eighteen respondents indicated that there were fifty or more staff who were Chartered Professional Engineers, technologists or registered on the national engineering registers. This data should be treated with caution as it is suspected that these respondents may have misunderstood the question and simply recorded the number of staff in the firm, not the number of qualified or registered staff. Q1A: Insurance Cover in 2003 Q. Do you have insurance cover? T ABLE 2 H AS I NSURANCE C OVER Total (569) % Yes 71 No 29 Q1B: Reason Has No PI Insurance Cover Q. Is your choice not to have insurance cover due to &&&..? T ABLE 3 R EASON H AS N O PI I NSURANCE C OVER Total (158) % Cost 46 Never had it 33 Exclusion clauses 28 Insurance refused 10 Q8: Had Insurance Claims in Past Three Years Q. Have you had any insurance claims against you in the past three years? T ABLE 4 H AD I NSURANCE C LAIMS IN P AST 3 Y EARS Total (532) % No 91 Yes 9 Institution of Engineers - 6 - Russ Knight Research Professional Indemnity Insurance Survey March 2003 PI I NSURANCE C OVER & C LAIMS H ISTORY Incidence of Cover Seven out of ten engineers surveyed claimed to have Professional Indemnity insurance (71%; Table 2). This was most common among owner/managers (82%) and sole practitioners (65%). Twenty-nine percent of engineers were not covered, in particular, employees (65%). Engineers practicing in the smaller states and territories were less likely to be covered than others: " ACT (44% not covered) " WA (40%) " Northern Territory (40%) " Tasmania (38%) The use of formal risk management strategies does not appear to impact on whether an engineer carries PI cover. " Uses risk management strategies (73% covered) " Does not use risk management strategies (67% covered) Reasons for Not Carrying PI Insurance Cover Cost was cited as the main reason why PI insurance is not taken out (46% of the non-insured; Table 3), particularly among owner/managers (62%). Exclusion clauses also contributed to the decision (28%). Over a third of sole practitioners gave this as a reason (36%). Ten percent of those without PI insurance indicated that it was not their decision. They claimed to have sought cover but been refused. This equated to three percent of the total sample. One out of three uninsured said that they had never had PI insurance (33%). Most of these were employees (87%). Claims in Past Three Years A small proportion of engineers had made a claim in the last three years (9%; Table 4). This included 11% of those currently insured and 3% of those now uninsured. Employees (18%) and owner/managers (11%) were considerably more likely to have made a claim than sole practitioners (3%). The incidence of claiming was also much higher among large firms (turnover $5m+, 28%; 50+ employees, 29%) than those with a turnover below $0.5m (4%) or five or less staff (4%). Institution of Engineers - 7 - Russ Knight Research Professional Indemnity Insurance Survey March 2003 Q2: Services PI Cover Refused in Past 12 Months Q. In the past 12 months, has PI insurance cover been refused, or new conditions/restrictions imposed by your insurer, in respect of any of the following services you provide? T ABLE 5A S ERVICES C OVER R EFUSED OR C ONDITIONS / R ESTRICTIONS I MPOSED Total (569) % Nil, no services refused cover 51 Project management 8 Environmental engineering 7 Geotechnical engineering 5 Building inspections 5 Foundation / slab work 4 Overseas work 4 Oil & gas 3 Aeronautics, aviation & marine engineering 2 Defence work 2 Building surveys 2 Mining engineering 2 Cooling towers 2 Marine engineering 1 Building services 1 Structural engineering 1 Mechanical engineering 1 Motor vehicle assessments 1 Bridge/ tunnels 1 Cost estimating 1 IT 1 Coastal engineering 1 Fire safety 1 Railways/ signalling/ electrification 1 Civil engineering 1 Fair grounds and amusement equipment 1 Other service* 13 * 69 8other 9 services gained 1 or 2 mentions Institution of Engineers - 8 - Russ Knight Research Professional Indemnity Insurance Survey March 2003 S ERVICES N OT C OVERED / C ONDITIONS / R ESTRICTIONS I MPOSED Half of the engineers surveyed reported that, in the last 12 months, they had been refused cover, or had some conditions or restrictions imposed on them (49%; Table 5A). This was more likely to apply to owner/managers (54%) and sole practitioners (50%) than employees (31%). It was also slightly more common among engineers practicing in Tasmania (62%) and the ACT (61%). Size of firm and the use of risk management strategies appear to have no influence. A wide range of services was cited. Project management (8%) and environmental engineering (7%) gained most mentions. The cTop 10 d services affected were: T ABLE 5B cT OP 10 d S ERVICES R EJECTED /R ESTRICTED No. of Mentions Project management 43 Environmental engineering 42 Geotechnical engineering 28 Building inspections 27 Foundation / slab work 23 Overseas work 23 Oil & gas 15 Aeronautics, aviation & marine engineering 11 Defence work 11 Building surveys 10 Institution of Engineers - 9 - Russ Knight Research Professional Indemnity Insurance Survey March 2003 Q3A/B: Services Ceased Offering 3 Due to Rising Insurance Costs/ Policy Exclusions Q3A. Are you planning to cease or have you ceased offering any of the following services because of rising insurance costs ? Q3B. Are you planning to cease or have you ceased offering any of the following services because of policy exclusions ? T ABLE 6A S ERVICES C EASED O FFERING Q3A Rising Insurance Costs (569) % Q3B Policy Exclusions (569) % Nil, no services ceased/ planning to cease 79 82 Ceased/ planning to cease offering services 21 18 Project management 4 2 Environmental engineering 3 2 Geotechnical engineering 3 2 Foundation / slab work 3 2 Building inspections 2 2 Overseas work 2 2 Fair grounds and amusement equipment 2 1 Aeronautics, aviation & marine engineering 1 1 Cooling towers 1 1 Motor vehicle assessments 1 1 Mining engineering 1 1 Building surveys 1 1 Marine engineering 1 1 Oil & gas 1 0 Defence work 1 0 Railways/ signalling/ electrification 1 0 Retired/ retiring/ closed business due to PI costs 1 Cost estimating 0 1 Pre-purchase inspections 0 1 Other service* 5 * 26 8other 9 services gained 1-2 mentions 6 * 29 8other 9 services gained 1-2 mentions Institution of Engineers - 10 - Russ Knight Research Professional Indemnity Insurance Survey March 2003 S ERVICES C EASED O FFERING Due to Rising Insurance Costs 21% of engineers indicated that they had ceased, or were planning to cease, offering some services due to rising insurance costs (Table 6A). This was marginally more prevalent among engineers in smaller firms. T ABLE 6B: C EASED / P LANNING TO C EASE O FFERING S ERVICES N O . OF S TAFF % T URNOVER % 0-5 25 <$0.5m 23 6-9 19 $0.5m - <$1.0m 30 10-49 19 $1.0m - <$5.0m 17 50+ 13 $5m+ 16 An extensive range of services was mentioned, the top four being: " Project management (4%) " Environmental engineering (3%) " Geotechnical engineering (3%) " Foundation / slab work (3%) Due to Policy Exclusions 18% of engineers indicated that they had ceased, or were planning to cease, offering some services due to policy exclusions (Table 6A). This was more the case among engineers practicing in the ACT (28%) and Tasmania (26%) and those in smaller firms. T ABLE 6C: C EASED / P LANNING TO C EASE O FFERING S ERVICES N O . OF S TAFF % T URNOVER % 0-9 20 <$1.0m 21 10+ 13 $1m+ 12 A wide range of services was again mentioned. Six services gained at least nine mentions: " Environmental engineering (2%; ACT 10% & TAS 9%) " Overseas work (2%; ACT 11%) " Geotechnical engineering (2%) " Project management (2%) " Foundation / slab work (2%) " Building inspections (2%) Institution of Engineers - 11 - Russ Knight Research Professional Indemnity Insurance Survey March 2003 L EVEL OF C OVER , P REMIUM P AID & E XCESS P AYABLE 3 2000 TO 2003 Respondents were asked to detail for each of the years 2000, 2001 and 2002, their level of PI insurance cover, the premium paid and the excess payable. And for 2003, the amount they expected to pay etc. It is assumed that the figures provided exclude GST. If the respondent provided both amounts, the figure excluding GST was entered. Analysis of the findings reveals five records containing unusually high figures eg ID 28 (this respondent recorded a $2,000,000 premium in 2003 for $20,000,000 cover with a $500,000 excess; Table 7). Two sets of means have been calculated for each question; one including all records and the other excluding the five 8outliers 9 (due to the significant effect that they have on the means). Missing data (eg cdon 9t know d) and zero responses ( cno cover d) have been excluded from the mean calculations. T ABLE 7: 8O UTLIERS 9 Qn # Year ID 28 ID 30 ID 429 ID 464 ID 466 $ $ $ $ $ Q4A Cover - 2000 10,000,000 25,000,000 50,000,000 180,000,000 10,000,000 Q4B - 2001 10,000,000 25,000,000 50,000,000 180,000,000 10,000,000 Q4C - 2002 10,000,000 25,000,000 50,000,000 200,000,000 5,000,000 Q4D - 2003 20,000,000 25,000,000 50,000,000 200,000,000 10,000,000 Q5A Premium - 2000 300,000 88,000 Refused 145,164 175,500 Q5B - 2001 350,000 116,000 Refused 159,720 460,000 Q5C - 2002 1,000,000 155,000 Refused 215,622 879,000 Q5D - 2003 2,000,000 700,000 Refused 320,000 DK Q6A Excess - 2000 20,000 100,000 1,000,000 10,000 250,000 Q6B - 2001 50,000 100,000 1,000,000 10,000 250,000 Q6C - 2002 1,000,000 100,000 1,000,000 10,000 250,000 Q6D - 2003 500,000 500,000 1,000,000 10,000 5,000,000 Institution of Engineers - 12 - Russ Knight Research Professional Indemnity Insurance Survey March 2003 Q4: PI Insurance 3 Level of Cover 2000-2003 Q. Over the past three years, what has been the level of PI insurance cover for your practice? And what level of cover will you be seeking in 2003? In an earlier question (Q1), 71% of the sample said that they had PI insurance cover. In this question, 73% indicated that they either had cover in 2003, or were seeking it (Table 8). In fact, 22% of uninsured respondents ( cNo d in Q1) stated that they were seeking cover for 2003. The proportion of engineers with PI insurance appears to have increased steadily between 2000 and 2002 (up from 69% to 78%). It declined slightly in 2003 (73%). The level of cover taken out has increased from $3.31m in 2000 (excluding outliers) to $3.53m in 2003, a rise of 6.7%. The rate of increase has declined over the last three years: 2000 to 2001 +5% 2001 to 2002 +2% 2002 to 2003 31% T ABLE 8 L EVEL OF C OVER 2000 (569) % 2001 (569) % 2002 (569) % 2003 (569) % Cover taken 69 74 78 73 $0.5m or less 3 3 2 2 $0.51m to $1.0m 21 21 22 20 $1.1m to $2.0m 16 18 20 18 $2.1m to $4.0m 3 4 4 4 $4.1m to $6.0m 17 19 21 21 $6.1m to $10.0m 6 6 7 7 $10.1m to $50.0m 1 2 1 1 Over $50m 0 0 0 0 No cover/ no answer 31 25 22 25 Don 9t know 1 1 1 2 Mean (all records >0) $3.97m $4.08m $4.16m $4.22m Mean (>0; excluding outliers) $3.31m $3.47m $3.55m $3.53m Institution of Engineers - 13 - Russ Knight Research Professional Indemnity Insurance Survey March 2003 T ABLE 9A: P REMIUMS BY D EMOGRAPHICS 2000 2001 2002 2003 2000-01 2001-02 2002-03 2000-03 Total * 6,775 8,435 13,709 21,014 25% 63% 53% 210% Status Employee 26,661 34,843 41,914 37,861 31% 20% -10% 42% Status Sole Practitioner 2,354 2,636 3,810 5,670 12% 45% 49% 141% Status Owner/Manager 8,409 10,602 18,068 30,259 26% 70% 67% 260% No. of Staff 0-5 2,654 3,269 5,330 6,990 23% 63% 31% 163% No. of Staff 6-9 7,436 7,004 12,139 17,166 -6% 73% 41% 131% No. of Staff 10-49 15,157 20,766 33,010 54,050 37% 59% 64% 257% No. of Staff 50+ 40,057 52,401 71,333 104,870 31% 36% 47% 162% State NSW 8,066 9,684 15,335 27,407 20% 58% 79% 240% State QLD 9,130 11,426 19,298 31,311 25% 69% 62% 243% State VIC 6,615 9,713 16,338 27,758 47% 68% 70% 320% State SA 9,571 14,768 23,598 26,127 54% 60% 11% 173% State WA 8,539 11,172 18,348 26,110 31% 64% 42% 206% State NT 6,410 14,353 21,057 20,200 124% 47% -4% 215% State ACT 5,817 10,948 19,011 22,995 88% 74% 21% 295% State TAS 6,252 11,909 20,509 22,321 90% 72% 9% 257% Practice Capital City 7,598 9,337 14,569 21,806 23% 56% 50% 187% Practice Non-Metro 5,771 8,224 14,845 16,801 43% 81% 13% 191% Turnover <$0.5m 3,353 3,540 5,869 8,798 6% 66% 50% 162% Turnover $0.5m to <$1.0m 6,581 6,678 11,043 14,977 1% 65% 36% 128% Turnover $1.0m to <$5.0m 11,587 14,882 23,637 37,815 54% 32% 60% 226% Turnover $5.0m+ 37,915 55,334 80,865 138,386 46% 46% 71% 265% Uses Risk Mngt Yes 9,382 11,652 18,191 28,469 24% 56% 57% 203% Uses Risk Mngt No 5,087 6,157 10,206 12,780 21% 66% 25% 151% Govt Work 0-5% 5,473 7,151 11,496 15,408 31% 61% 34% 182% Govt Work 5-20% 8,604 9,471 17,042 24,867 10% 80% 46% 189% Govt Work 20-50% 7,017 8,399 11,936 18,933 20% 42% 59% 170% Govt Work 50-100% 7,315 9,521 14,200 20,549 30% 49% 45% 181% * Mean (>0; excluding outliers) Institution of Engineers - 14 - Russ Knight Research Professional Indemnity Insurance Survey March 2003 Q5: PI Insurance 3 Premiums 2000-2003 Q. Over the past three years what premium has your practice paid for its PI insurance cover? And what do you expect to pay in 2003? The amount of premiums paid has more than tripled over the last three years (Table 9B). The average has increased from $6,780 in 2000 (excluding outliers) to $21,010 in 2003, a rise of 210%. The rate of increase was similar over the last two years: 2000 to 2001 +25% 2001 to 2002 +63% 2002 to 2003 +53% T ABLE 9B P REMIUMS 2000 (569) % 2001 (569) % 2002 (569) % 2003 (569) % $1,000 or less 8 5 2 1 $1,001 to $1,500 13 11 7 2 $1,501 to $2,500 15 16 14 8 $2,501 to $5,000 11 16 16 13 $5,001 to $10,000 8 11 14 12 $10,001 to $20,000 4 5 11 8 $20,001 to $50,000 4 5 7 7 $50,001 to $100k 2 1 2 3 $101k to $200k 0 1 1 2 $201k to $500k 0 0 1 1 Over $500k 0 0 0 0 No premium paid/ no answer 34 28 22 32 Don 9t know 1 0 1 12 Mean (all records >0) $8,610 $11,010 $18,720 $30,280 Mean (>0; excluding outliers) $6,780 $8,440 $13,710 $21,010 The largest increases in premiums over the last three years have occurred among the following groups (Table 9A): " Victorian firms 320% " Firms turning over $5m+ 265% " Owner/managers 260% " Firms with 10-49 staff 257% Firms using risk management strategies have higher premiums and have experienced larger rises (203%) than those who do not use them (151%). There appears to be no relationship between the proportion of government work done and premium increases. Institution of Engineers - 15 - Russ Knight Research Professional Indemnity Insurance Survey March 2003 Q6: PI Insurance 3 Excess Payable 2000-2003 Q. Over the past three years what has been the deductible or excess payable under your practice 9s PI insurance policy? And what do you expect it to be in 2003? Excesses payable has nearly tripled over the last three years (Table 10). The average has increased from $8,270 in 2000 (excluding outliers) to $21,970 in 2003, a rise of 166%. The excess payable has risen sharply over the last 12 months (61%): 2000 to 2001 +34% 2001 to 2002 +23% 2002 to 2003 +61% T ABLE 10 E XCESS P AYABLE 2000 (569) % 2001 (569) % 2002 (569) % 2003 (569) % $1,000 or less 14 16 12 6 $1,001 to $2,500 17 18 15 9 $2,501 to $4,000 3 3 2 1 $4,001 to $6,000 12 15 18 19 $6,001 to $10,000 6 6 11 10 $10,001 to $20,000 4 4 5 5 $20,001 to $50,000 3 4 7 6 $50,001 to $100k 1 1 1 2 $100k to $200k 0 0 0 1 $201k to $500k 0 1 1 1 Over $500k 0 0 0 1 No excess payable/ no answer 38 33 27 34 Don 9t know 1 1 0 6 Mean (all records >0) $12,070 $14,640 $19,170 $42,260 Mean (>0; excluding outliers) $8,270 $11,080 $13,640 $21,970 Institution of Engineers - 16 - Russ Knight Research Professional Indemnity Insurance Survey March 2003 Q7: Has Increase in Cost of PI Insurance Resulted in Higher Fees Q. If the cost of your practice 9s PI insurance has increased, has this resulted in higher fees? 428 engineers, or 75% of the total sample, responded to this question. Nearly half of this group confirmed that their fees had risen as a result of increased PI insurance premiums (46%; Table 11). A further 25% said that fee increases were being considered due to higher insurance costs. Response to this question was similar across the states. Firms practicing in non-metro areas were marginally more likely than others to have increased fees, or to be considering it (80% cf 68% of capital city only firms). T ABLE 11 H IGHER F EES DUE TO I NCREASE IN C OST OF PI I NSURANCE Total (520) % Excluding 8Not Applicables 9 (428) % Yes 38 46 No 23 29 Being considered 21 25 Not applicable 18 Institution of Engineers Russ Knight Research Professional Indemnity Insurance Survey March 2003 A PPENDIX O NE - Q UESTIONNAIRE - Question 1(a) Do you have insurance cover? Yes No Question 1(b) If No, is your choice not to have insurance cover due to Cost Exclusion clauses Never had it Question 2 In the past 12 months, has PI insurance cover been refused, or new conditions/restrictions imposed by your insurer, in respect of any of the following services you provide? environmental engineering geotechnical engineering mining engineering foundation / slab work aeronautics, aviation and marine engineering defence work fair grounds and amusement equipment motor vehicle assessments cooling towers oil & gas project management overseas work building inspections building surveys Other: Please specify Institution of Engineers Russ Knight Research Professional Indemnity Insurance Survey March 2003 Question 3 Are you considering ceasing or have you ceased offering any of the following services because of rising insurance costs or policy exclusions? Insurance costs Policy exclusions environmental engineering environmental engineering geotechnical engineering geotechnical engineering mining engineering mining engineering foundation / slab work foundation / slab work aeronautics, aviation and marine engineering aeronautics, aviation and marine engineering defence work defence work fair grounds and amusement equipment fair grounds and amusement equipment motor vehicle assessments motor vehicle assessments cooling towers cooling towers oil & gas oil & gas project management project management overseas work overseas work building inspections building inspections building surveys building surveys Other: Please specify Other: Please specify Question 4 Over the past three years what has been the level of PI insurance cover for your practice? And what do you expect it to be in 2003? 2000 $....... 2001 $....... 2002 $....... 2003 $....... Question 5 Over the past three years what premium has your practice paid for its PI insurance cover? And what do you expect to pay in 2003? 2000 $....... 2001 $....... 2002 $....... 2003 $....... Institution of Engineers Russ Knight Research Professional Indemnity Insurance Survey March 2003 Question 6 Over the past three years what has been the deductible or excess payable under your practice 9s PI insurance policy? And what do you expect it to be in 2003? 2000 $....... 2001 $....... 2002 $....... 2003 $....... Question 7 If the cost of your practice 9s PI insurance has increased, has this cost been passed on to your clients in the form of higher fees? Yes No Being Considered Not Applicable Question 8 Have you had any insurance claims against you in the past three years? Yes No Question 9 (a) Are you: An Employee A Sole Practitioner Owner/Manager of a firm (b) How many staff does your firm employ u 0-4 u 6-9 u 10-19 u 20-49 u 50-69 u 70-99 u 100-over (c) In which State(s) are you/or your firm practicing? u NSW u QLD u VIC u SA u WA u NT u ACT u TAS (d) Annual turnover of firm or sole practice u uu u <$0.5m u uu u $0.5<$1m u uu u $1m<$2m u uu u $2m<$5m u uu u $5m<$10m u uu u $10m & > (e) Is your practice in a: Capital city Rural or regional area Institution of Engineers Russ Knight Research Professional Indemnity Insurance Survey March 2003 A PPENDIX T WO - A DDITIONAL R ESPONDENT F EEDBACK ID Comment No ID I am basically retired, but keep my hand in by doing some design work on off-road vehicle transfer boxes, similarly I offer a service as an RTA Engineering Signatory. In this function I carry out inspection of modified vehicles, advise on the strength and compliance of these to suit the NSW Road Transport (Vehicle Registration) Regulation, ADR's and appropriate FORS determinations. Both things require stress calculations and a practical knowledge of fabrication processes. Recently, my application to renew my existing PI Policy was rejected on the basis that it was outside the insurer 9s guidelines. Subsequently, I have used several brokers to search for an insurer and now am no longer able to carry out Gearbox Designs and have some considerable restrictions placed on my RTA work. There was one offer of insurance close to the original cover, but the premium made it impossible to take up as the volume of work would not cover the costs. No client in my area of activities would willingly pay $1500 - $2000 for an Engineers Report, particularly as the NSW RTA is changing its system and there is a likelihood of having to have specialist reports on each area of modification. This could end up costing many thousands of dollars per vehicle inspected. 8 Re Q1: Our PI was withdrawn this year after 5 years of claim free history. 10 I have to negotiate with my clients to waive the need for compulsory PI cover. This is becoming difficult and impacts on types of work available. 23 Re Q9g): The irony - under the professional standards act (1994) hoping for IEAust to develop a scheme (like accountants & lawyers) but the government contracts didn't allow this! NSW Govt didn't comply/ support their own legislation . 45 It is also important to have diversity in the companies offering PI insurance - the only time I called on my insurance was to defend a design principle - the matter was resolved out of court, against my best interests, because both parties were insured by the same company. 49 Re Q2: I am in process of renewing the policy now and fear the premiums will be even higher than last year in which case I will not be able to afford it. Re Q7: Will more likely result in non renewal of Policy as it is a very large outlay for the income I receive (2-3%) Comment: This cost could determine whether I stay in business or not. Some clients will not hire without it, if this puts rates up than the job is lost - Catch 22! 50 I have retired from paid electrical engineering consulting work. I am insured by IEAust, Standards Australia and NATA for unpaid work in relation to Standards Committees and NATA technical inspections. I must comment that I had difficulties negotiating with Segewick and their successors to continue my run off insurance for cover after ceasing work on claims related to the work performed whilst insured. 51 Re Q1a): I am an employee Civil engineer working in software support and training. As such I do not believe I undertake activities which would create an insurable risk to me. I made an assessment of my likely income from minor structural outside work a few years ago and found the costs of insurance then exceeded the potential gross income. I have simply ceased to work in the structural area. 57 As a result of the cost of insurance for work in Australia, and the inability to get any cover for overseas work (which represented about half the total work), I am closing the consulting practice, taking retirement, but carrying on some local work as a casual employee of major firms. Institution of Engineers Russ Knight Research Professional Indemnity Insurance Survey March 2003 ID Comment 61 We are a small manufacturing business, and as such the survey is inappropriate to our operation. We manufacture and supply DC power systems for telecommunications applications. We do have a component of design in each of the systems we provide, so we carry PI insurance to complement our other liability policies. We renewed our PI cover in December last year. Our brokers were able to find only one insurer willing to underwrite our risk, and our premium rose by 1/3 for the same cover as the previous year. We have been in business for 7 years with no claims on any liability insurance. I fully support your involvement in liability insurance issue, which of course is of fundamental importance not only to consulting practices, but to all organisations providing engineered products and services. Unless the community is willing to allow significant increase in the cost of such products and services, the risk to the providers of the services must be limited by legislation. 65 The biggest issue now is finding an underwriter to carry the current risk (PI) and the trailing risk (PI). Most insurers will not insure small firms at all !! 69 Re Q9g): Good question because government is the worst!!! Every year I get one or two $5K jobs with government, and they want $5M of PI each time. I continue to fight it off, and win. But it's getting very hard. The worst case I heard of was that of Main Roads asking an artist to get PI & an artist who designed curved metal sculptures to hang from street light poles (near Burswood Casino, Perth)&she drew the pictures& someone else designed structurally and someone else did construction&.. but the artist needed PI for the concepts!? Comment: This is long overdue. I practise as an environmental engineer, fringing on geotech, to the mining and water resources industries. Every job is different. About 4-5 years ago I sought PI for the first time. After a long struggle, it was determined they would not quote for me. Why? "Because environmental engineering is too risky". Why? "Because I might do contaminated site assessments." But I don't do them. "But you might!". At present, instead of paying PI, I pay lawyers to set up trusts and umpteen companies to separate my activities and to protect them from collapse if I were to slip up somewhere&and then I pay accountants to do multiple accounts. 81 Re Q3: I've done it, taught it, and have relied upon it for my livelihood for 30 years, with NO problems! Why should a bean counter suddenly stop me?! 82 Re Q1b: No one will offer a quotation for PI Insurance this year. Tried 3 different brokers & 12 underwriters. Insurer's reasons for not offering insurance - business too small . 83 Re Q1b: As of October 2002 we were unable to renew our PI Insurance and have not yet since. Re: Q2: Reasons never given why. Just "unable to offer". Re Q3: Have to work uninsured or totally shut down business. 94 If I can't get PI insurance next October I will have to close down practice. 101 It was my intention to do part time consultancy work after retirement. (Average 2 days per week). I did only one project since the cost of PI insurance was prohibitive. I am now in full retirement apart from voluntary work. 105 I have tried four insurance companies that I could identify as possibly offering insurance. No one will tell my why they consider coastal engineering a risky field of practice. No one will offer me insurance at any price even though I have never had a claim against me. On legal advice I have divested my assets to my wife. She no longer is a director of my company. I have a choice of continuing my practice in this manner or retire - which I do not want to do. Institution of Engineers Russ Knight Research Professional Indemnity Insurance Survey March 2003 ID Comment 118 RE: Q3: I work in a very narrow niche or geotechnical engineering. I will continue to work in that area and either make sure that my client has adequate insurance cover or increase my costs to cover increased insurance risk. I explicitly excluded slab design and construction supervision from my proposal to my insurer as part of my strategy to obtain insurance and will not undertake that work. Comment: I would urge Engineers Australia to push very hard on this issue. Regardless of personal outcomes I regard the general issue of insurance and liability as one of the great challenges to who we are and how we operate as a community of Australians, and I expect the Institution to push for workable solutions. 133 I consult in chemical engineering & manufacture (through subcontractors) a wastewater filter. It is impossible to get professional indemnity & product liability with the same insurance company which is ridiculous since they interact on the same products. Last year my broker contacted every major insurance company in Australia. Only Zurich & QBE would consider PI insurance. This year Zurich have declined due to policy changes. QBE is reluctant but are considering it. At this stage it seems unlikely I will be able to find any insurer to take on my PI (or product liability) for consulting in wastewater treatment and manufacture of slurry filters. This is despite paying more than 2% of turnover for PI alone last year and making no claims in the entire 11 years of practice. I have already had to restrict my design consultancy and also no longer project manage installation of wastewater plants because of policy exclusions. I am not prepared to risk my family home on a job with potential profit of a few thousand dollars. Consequently, small companies are being forced to use larger, more expensive wastewater design companies, or to circumvent the regulations. There are many subtle issues with PI since HIH collapsed (which cost me money in wasted premium). For example, all my sub-contractors have to have their own PI. Nowadays, most small companies don't carry PI so I am forced to use large sub-contractors with higher charges or take the risk of being uninsured. There are lots of other issues but I am sure you are aware of them. I am good at what I do. This insurance fiasco is costing me and Australia money. We need IEAust action to bring it to an end. 135 Re Q9: Now retired but required to keep paying PI insurance for past work. Believe the premium should drop significantly on retirement but this has not been the case. 148 Re Q2: Premiums held in check only by considerably restricting area of work now practising in. Comment - This is a small consultancy with a turnover under $100,000. With Workers Compensation now applicable to single-owner employee organisations & with the rising insurance premiums there is a strong possibility I will close down in 12 months & retire. Your survey misses an important point. Had I continued with the area of work covered in 2001, the Insurance (PI) would have increased 10 times, ie a 1000% increase. This would have closed me down & so I chose to negotiate restrictions; they are proving to be too onerous & I may close down anyway. This is indeed the most critical change in our industry. Most of my consultant colleagues have chosen not to carry PI cover. I have chosen to continue but am now not competitive & my workload has fallen to only 25% of that of a year ago. I have 40 years of specialised experience (& many awards here & overseas) yet will be forced out of the industry. Due to the restrictions on my area of work, I am now unable to bid for government work as that entails a more general PI cover than the narrow PI cover I now have. All in all a disaster for me, for the profession, & for Australia. A sinister aspect is that my multi-national competitors have no such difficulties; they set up their own Insurance Division and self-insure. This augers very badly for ALL Australian industry which may soon disappear entirely. Institution of Engineers Russ Knight Research Professional Indemnity Insurance Survey March 2003 ID Comment 150 I have been battling the NSW Roads & Traffic Authority who want my cover increased to $5 million. So far I have managed to get them to back down. The organisation has gone risk/liability mad! 198 Our PI insurance has been difficult as it is not understood by the insurance companies at all well or by this institution. Just look at the categories you offer. We do not fit into Heavy Engineering or IT of Medical Related PI. We used to have a reasonable insurance policy with FAI when they existed but after them it all became an insurance premium game which we did not want to play. If the insurance companies were reasonable about our claim history which has been Nil, since we have been in business since 1984, and had an understanding of what we do, then I would consider looking at it again, otherwise be prepared to shut up shop. 200 Sole practitioners make up a large number of practices and pay disproportionately high PI. 204 I now run the risk without PI, because if I am sued then I will be declared bankrupt and close the doors. Because of the small nature of my business, my risk analysis showed that it is unlikely that a large company will seek damages for negligence for this reason. If (when) the company has 5 employees in a technical role, then I would consider PI necessary. 258 I do not carry PI insurance. Because of this, I limit the type of work that I do, where the risk of litigation is minimal. The only way for me to afford PI insurance is if my turnover was significantly higher than it is. Alternatively I would have to work for a company and be covered by their PI policy. This does not suit my lifestyle or professional practice. 267 The removal of the 10 year roll on is a disaster and will probably result in myself being forced out of business. What can the Institution do about it? 322 Our previous insurer (RE Brown) withdrew from the Australian market. Our broker contacted 12 other insurers to continue the policy but all declined to offer any policy - regardless of premium or conditions. 351 Re Q2: During 2002, my then insurer declined to offer renewal terms and four others declined to offer terms, as "nature of business outside insurance guidelines". My business has discontinued trading due to inability to obtain PI insurance on reasonable terms. I have taken a salaried position as of August 2002 due to this situation. In a couple of years (ie 2004/2005) if the situation has not improved, I will have to close down my company and continue as a salaried employee. 364 Re Q7: Currently considering returning back to a single man practice (no employees) with very limited cover only. Cannot afford to maintain the present level of service to my clients. It was a struggle to obtain cover for 2003. 396 Re: Q2: Legionella issues associated with cooling towers will be an issue. 435 Re Q3: We are continuing to trade as environmental engineers, without PI cover, because Marsh has been unable to find even an offer of cover. Neither I nor my partner have ever had even a hint of a claim against us, and for my part I have 20 experience, I am an IEAust Fellow, winner of an engineering excellence award, and a part-time University lecturer. Our work doesn't involve construction, just studies. Institution of Engineers Russ Knight Research Professional Indemnity Insurance Survey March 2003 ID Comment 460 Re Q2: My insurer refused to renew my policy after 19 years. Two brokers Marsh and AON were approached in May 2001. Marsh never responded despite various phone calls. They are the IEAust broker but gave no service and were appalling. I contacted AON due to lack of response from Marsh in June. I received a response from them in August - 3 months later and eventually the policy was incepted in September. The entire exercise took 5 months and consumed a great deal of my time. My premium increased from $1,000 to more than $4,000 although the nature and volume of my business had not changed. As a risk management practitioner I had to point out my risk management practices and explain my consulting activities in great detail to non technical people in AON who understand very little about engineering consulting. IEAust was also of no assistance. I called and emailed the contact in Canberra with no reply. I feel the Institute's initiative is too little too late. 468 I believe my practice has only a limited life as any claim or notifiable circumstance will result in either no offer of insurance or excessive premiums. I have worked all my life to reach this point in my career. It is infuriating that it may be curtailed due to an insurance crisis. The engineering profession is becoming less attractive daily due to these problems as well as litigation and relatively low remuneration. 475 One consulting firm asked me for Indemnity Insurance because that was their policy for hiring contractors. They were offering one and a half days work and the job did not involve any technical decision, as it was to facilitate a workshop. Three years ago when I applied for PI the amount of rigmarole involved was phenomenal and that was before the crisis. You can't ask any advice and can get trapped on stupidity regarding definitions. In the end I decided that in the type of work I was doing PI insurance was irrelevant. Perhaps there are lots of people like me who would have taken out the cover if it was an easier process and made sense. Perhaps the Insurance people who were nominated by IEAust should have a better understanding of Engineering outside of design and construction. For example, do not enter Asset Management Planning as Asset Management because Asset Management is a high cost PI item. 533 Please note that the original 10 yr indemnity after ceasing to practice does not apply for the 2003 policy as a result of a ministerial order!! This is of great concern and needs addressing. 544 The reason why I pulled the pin was because - I am sick of the ATO and all their unnecessary compliance crap - the time consuming BAS - AND the last straw was the 3 fold increase of the PI, the P/L was unobtainable or if it was a ten fold figure was quoted - so I told them to shove it. Then if you were able to withstand all of this you have to make sure you don't expose yourself to any risk otherwise under the rules of privatisation - the penalties or lawyers would strip you of your assets. If insurance can't be properly managed in the private sector - then the Government should Nationalise it - this is not political it is reality for me - I am now forced to work PAYE for a multi national Company for half the income and half the hours (the only good thing about it).

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