Survey: Most Architects and Engineers Professional Liability Rates to Rise

Most insurers plan to increase architects and engineers (A&E) professional liability insurance rates for a third consecutive year, according to a new survey by Ames & Gough.

The specialty insurance broker reported that the increases are driven by concerns regarding the effects of economic and social inflation on claim expenses, along with heightened risks associated with specific project types, professional design disciplines and evolving project delivery methods.

Seventeen leading insurance companies that represent a significant percentage of the overall marketplace providing professional liability insurance to architects and engineers in the U.S. were surveyed. According to the survey results, all but one plan to raise rates, with one insurer seeking to keep rates flat. Among the insurers raising rates, 75% plan increases of up to 5%, while 25% plan rate increases of 6% or more.

Cady Sinks, assistant vice president and partner at Ames & Gough and co-author of the survey, described the market as “cautious” but also having a “cautiously optimistic” outlook. Despite the withdrawal of a major insurer, more limit restrictions and rate increases, “part of the message that I’m trying to tell my clients is that some of this is to ensure that the insurers in the market today stay in the market long-term,” she said.

“So, I think the positive out of all of this is that insurers are really taking a cautious and careful look at their business for that long-term outlook,” Sinks continued. “And that’s not a bad thing. We want them there. We want them strong and healthy so that they can insure our clients.”

Addressing Movement in the Market

Ames & Gough’s annual survey aims to inform clients about the changing A&E landscape through continued research. The writers’ goal is to find a new nugget of valuable information each year, and this year, Sinks highlighted the importance of shifting to an even more collaborative approach because of the changing market dynamics.

“What I’m finding is that, for myself and for Ames & Gough, we are really taking a much more strategic and holistic approach for our clients because of how much change is happening in the industry,” she said, explaining that rate increases are a little higher than last year and more consistent across carriers.

“I think that strategy is really trying to make sure that insureds know that there’s a lot of movement in the market,” Sinks said. “And if they have needs for special projects, higher practice limits, things like that, they really need to be working with us early on in that strategy so that we can deliver for them.”

Limits Scaled Back

Even though more than three-fourths of surveyed insurers reported consistent availability of professional liability limits, just 40% indicated they can provide limits exceeding $5 million (a significant decline from two-thirds of insurers in the 2023 survey).

So, even as market capacity generally remains stable, some insurers are scaling back limits for single accounts.

“In their quest to obtain higher professional insurance limits of liability, many A&E firms now find themselves between a rock and a hard place,” explained Jared Maxwell, vice president and partner at Ames & Gough and co-author of the survey. “They need to meet higher limit requirements of project owners but face greater underwriting scrutiny to obtain them.”

For design firms, “try negotiating with owners to check that higher limits are warranted. If the firms still need to increase their limits, they might explore alternative structures, such as specific additional limits endorsements/project excess or review their program structure and build layers with multiple participating insurers,” he said.

Intensifying Claim Severity

Just 6% of surveyed insurers reported a decrease in claim severity in 2023, while 18% indicated their claim experience worsened in 2023 from the prior year. Meanwhile, 81% of insurance companies cited inflation as driving up costs, noting that construction inflation is exceeding headline inflation with higher costs for materials, supplies and labor.

Most insurers surveyed also reported paying multimillion-dollar claims in 2023. Twenty-three percent paid a claim of $5 million or more, including 12% paying claims of $10 million or more. The largest claims often involved what insurers consider high-risk projects or disciplines, Ames & Gough reported. When asked to rank the top three disciplines for claim severity, 82% of insurers surveyed cited structural engineering, followed by civil engineering (59%) and architecture (47%).

Projects are larger and more complex than they were 10 or 20 years ago – a trend that Sinks sees continuing. Mechanical, electrical and plumbing firms are working on more complicated systems, she said, and as expectations rise, “we are seeing an uptick in claims for MEPs.” She added that Ames & Gough is also seeing large claims for its civil road and highway firms.

Widespread Rate Increases

According to the report, 75% of the insurers surveyed plan to target rate increases on accounts with adverse loss experience in 2024. At the same time, 56% will target firms with what they consider higher-risk projects, such as condominiums and other residential construction, including multifamily apartment dwellings, as well as street/road, highway and infrastructure.

Fifty-six percent of insurers also plan to target higher-risk disciplines, including structural engineering, mechanical engineering, civil engineering and architecture. Additionally, 25% are planning increases across their entire book of business, reflecting lingering concerns about rate adequacy and new worries over larger claims as business activity continues to rebound.

“Even as insurers providing professional liability coverage continue competing for A&E business, many are focusing on the most desirable risk segments while being relentless in applying sound underwriting discipline across their entire portfolio,” Sinks said.

She continued: “In this environment, design firms need to approach their risk management with heightened diligence that encompasses all aspects of their business – from client and project selection to choosing and managing subconsultants, maintaining effective quality control, performing thorough contract reviews, ensuring proper contractual risk allocation, and providing timely documentation of communication with owners and project participants.”

Go Deeper

Participants in the survey were AIG/Lexington, Aspen, Beazley, Berkley Design Professional, Berkshire Hathaway Specialty Insurance, Euclid/Nationwide, Everest, Great American Insurance Co., Hanover Insurance, The Hartford/Navigator, Liberty Mutual, PUA, RLI, Riverton/ Hudson Insurance, Sompo International, Travelers and Victor Insurance.

The full survey can be found on the Ames & Gough website.