Book 4 - Appraisal Institute of Canada

InsuranceThe ProfessionalLiability Insurance ProgramIt is that time of year again when AppraisalInstitute of Canada (AIC) members receivetheir professional liability insurance invoicesfor the 2011 policy year. This usually raises a lotof questions from the membership about theinsurance program and how it is working.The AIC’s professional liability insurance providesmembers with protection against claimsresulting from any errors and omissions madein the rendering of professional services.As defined in the policy, professionalservices means real estate appraisal services,including opinions and/or counselling whichmembers are qualified and authorized by theInstitute to provide. This includes real propertyappraisals and related consulting servicesthat are defined within the Canadian UniformStandards of Professional Appraisal Practice.The insurance policy is provided byTravelers Guarantee Company of Canada andreinsured through First Professional LiabilityInsurance Company, a wholly owned subsidiaryof the Institute.The policy provides members with up to $2million per claim in the aggregate annually andhas an annual member aggregate claim limit of$20.5 million.Why mandatoryThe Institute’s professional liability insuranceprogram is mandatory for all active members. Themandatory nature of the program makes it costeffective and enables members to benefit fromeconomies of scale. Moreover, as a true memberinsurance program, it guarantees coverage for allmembers in good standing. No member in goodstanding can be denied insurance as is the case withother types of insurance programs. The programstrives to promote high quality practice standardsand implement effective claims prevention andmanagement strategies to keep insurance costs low.Costs and claimsInsurance premiums are actuarially determinedand reflect historical and forecast claims andother risk factors. In recent years, as a result ofthe downturn in the real estate market, both thenumber and severity of claims has increased substantially.The multi-year trend is shown belowand it has had a significant negative impact onthe insurance program, requiring an increase ininsurance premiums to the members.The increase for 2011 has been held to anaverage of about 10% for all member categories.It is important to note that, notwithstandingthis increase, the insurance levies in 2011 arelower than they were in both 2003 and 2004.Overall, the average annual increase across allmember categories has been 2.2%.For further information, please go to themembers’ section of the AIC website http://www.aicanada.ca/cmsPage.aspx?id=100$3,500Insurance Levies by Member Category$3,000$2,500$2,000$1,500$1,000$500$02003 2004 2005 2006 2007 2008 2009 2010 2011AACI CRA CANClaims and Severity by Year70605040$160,000$140,000$120,000$100,000*2010 Data incomplete $80,00030$60,000201002003 2004 2005 2006 2007 2008 2009 2010$40,000$20,000$0$8,000,000$7,000,000$6,000,000$5,000,000$4,000,000$3,000,000$2,000,000$1,000,000$0Average Claim Cost Number of ClaimsCost of Claims2003 2004 2005 2006 2007 2008 2009 2010We asked the insurance program’s actuary about the program’s performance:What has been the trend over the last seven years? Claim severity has increased significantly and that is the reason why premium increases have been necessaryHow have the claims been distributed by member class? Claims have increased across all member classes.How does the increased number of claims in our industry compare with other professions? The amount of claims in your industry is cyclical and highly correlatedwith the real estate market. Currently, your industry is hard hit by E&O claims.Can we expect the premiums to go up again in the next few years? This trend will continue, unless the real estate market has a sustained recovery.click here to return to table 0f contentsCanadian Property Valuation Volume 54 | book 4 | 2010 Évaluation Immobilière au Canada 35