Architects & Engineers Insurers Seek More Rate Increases: Ames & Gough
According to a new survey from specialty broker Ames & Gough, insurers of professional liability for architects and engineers are planning additional rate increases to keep pace with rising claims costs, a backlog of litigation, worker shortages, and supply chain disruptions.
Fifteen of 16 insurers — a significant representation of the overall U.S. marketplace, said Ames & Gough — have plans to raise rates in 2023, with about half looking for increases up to 5% and the others seeking increases of 6% or more. About a quarter of insurers surveyed are planning increases across their entire book of business. Others plan to target high-risk projects like condominiums and schools, or high-risk disciplines such as structural engineering and geotechnical engineering.
The reasoning is clear, according to respondents. Claim severity in 2022 increased for 75% of insurers, with 88% citing social inflation as a major factor. One insurer noted claim settlements rose 50% over the last decade, said Ames & Gough.
“Today, insurers must deal with emboldened plaintiff attorneys, claimants unwilling to negotiate settlements, ‘nuclear’ jury verdicts, and escalating settlements in both indemnity and defense expenses,” said Jared Maxwell, vice president and partner, Ames & Gough and co-author of the survey. “When a design firm has a large loss, particularly one exacerbated by social inflation, its leadership should engage with their broker and underwriter to understand how the claim might impact the renewal and explain steps they’re taking to prevent a recurrence.”
The majority of insurers surveyed also reported paying multimillion dollar claims in 2022, with 38% paying a claim of $5 million or more, including 13% paying claims between $10 million to $19.9 million.
Many of the largest claims involved what insurers consider high-risk projects or disciplines. They also included incidents with bodily injury, environmental impacts or significant structural issues, or other errors and omissions that led to serious project delays and substantial cost overruns.
“With most insurers again planning to apply higher rates to firms with poor loss experience, design firms need to maintain a strong focus on sound risk management,” said Cady Sinks, assistant vice president and partner, Ames & Gough, and co-author of the survey. “This includes mindful client and project selection, careful selection and management of subconsultants, effective quality control measures, thorough review of contracts, proper contractual risk allocation, and timely documentation of communication with owners and project participants.”
To obtain a complimentary copy of the Ames & Gough Survey, PLI Market 2023: A/E Firms Maintain Growth Amid Expanding Risks and Rising Claim Costs, email info@amesgough.com.