Inflation, Rising Claim Costs, Riskier Business Reasons Cited for Rate Increases in A&E Market: Survey

Architects and engineers professional liability insurers report concerns about the persistent effects of inflation on claim expenses, uncertainty about the U.S. economy, higher risk project types and professional design disciplines, as well as new exposures from artificial intelligence (AI), according to a recent industry survey by specialty broker Ames & Gough.

The survey, which polled 17 insurance companies that represent a significant percentage of the overall marketplace providing professional liability insurance to architects and engineers in the U.S., revealed that most insurers plan to raise rates this year.

According to the survey, 71% of A&E insurers are planning rate increases in 2025, 24% plan to keep rates flat, and only one insurer expects to reduce rates. Among the insurers raising rates, all but one are planning modest increases (up to 5%), with the other planning a rate increase of 6-10%.

Of the insurers surveyed, 53% experienced higher claim severity in 2024 compared with 41% the prior year. Meanwhile, only 12% reported lower claim severity year-over-year.

Even with overall inflation reportedly easing in 2024, most (83%) insurers cited inflation as having an impact on their decision to raise rates. Higher costs for construction materials, supplies, and labor was cited as leading to higher damages and settlements. But most insurers pointed to social inflation, particularly jury awards and litigation trends, as contributing to higher claim payouts as well. One insurer estimated claim costs are rising 3-5% annually.

Nearly all insurers surveyed reported paying multi-million-dollar claims in 2024, with 82% paying a claim between $1 million and $4.9 million, and one insurer reported paying a claim of $5 million or more; that claim exceeded $20 million.

When asked to rank the top three disciplines for claim severity, 70% of the insurers surveyed cited structural engineering; the same percentage identified architecture, followed by civil engineering (59%).

Although the insurers surveyed reported no change in the availability of professional liability limits, some now appear willing to offer more capacity. This year, 53% indicated they can provide limits exceeding $5 million (up from 40% in 2024). In addition, 29% indicated they can offer limits of up to $10 million; 6%, up to $15 million; 6%, up to $20 million; and 12%, $25 million or above.

“Even though some insurers can offer higher limits, they still apply greater underwriting scrutiny to these requests,” said Jared Maxwell, vice president and partner, Ames & Gough and author of the survey. “When faced with these requirements, design firms should try negotiating with owners to ascertain that higher limits are warranted. If so, they might consider alternative structures, such as specific additional limits endorsements/project excess or try building layers with multiple insurers.”

This year, 67% of the insurers surveyed plan to target rate increases on accounts with adverse loss experience; 42% will target firms with what they consider higher-risk projects, such as condominiums and other residential construction, and infrastructure. Some 42% reported targeting higher-risk disciplines, including structural engineering, geotech, civil, and mechanical engineering.

One-third (33%) reported planning increases across their entire book of business.

Insurers also had concerns about the jump in merger and acquisition activity among design firms, noting the involvement of private equity firms may hasten the speed of the transactions and cause principals to overlook effective integration of risk management.

With more design firms integrating AI into their processes, 76% of the insurers surveyed indicated they are carefully monitoring these developments and their potential effects on claim activity. A potential scenario: A/E firms incorporating outdated or incorrect designs from internal AI libraries may be vulnerable to repetitive design errors and violations of technical standards or codes of conduct.