As the U.S. construction industry continues to benefit from steady economic growth, most insurers providing architects and engineers (A/E) professional liability insurance are concerned 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). To address these factors, most insurers plan to raise rates this year, according to a new survey by specialty insurance broker Ames & Gough.
As they enter 2025, 71 percent of insurers in the Ames & Gough survey of 17 leading insurance companies (which, on a combined basis, represent a significant percentage of the overall marketplace providing professional liability insurance to architects and engineers in the U.S.) are planning rate increases, 24 percent 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 percent) with the other planning a rate increase of 6 – 10 percent.
Inflation continues driving up claim expenses. Of the insurers surveyed, 53 percent experienced higher claim severity in 2024 compared with 41 percent the prior year. Meanwhile, only 12 percent reported lower claim severity year-over-year. Even with overall inflation reportedly easing in 2024, most (83 percent) insurers cited inflation as having an impact on their decision to raise rates. Besides higher costs for construction materials, supplies and labor as leading to higher damages and settlements, most insurers pointed to social inflation, particularly jury awards and litigation trends, as contributing to higher claim payouts. One insurer estimated claim costs are rising 3 – 5 percent annually.
Furthermore, nearly all insurers surveyed reported paying multimillion-dollar claims in 2024 with 82 percent paying a claim between $1 million – $4.9 million and one insurer reported playing a claim of $5 million or more: that claim exceeded $20 million.
When asked to rank the top three disciplines for claim severity, 70 percent of the insurers surveyed cited structural engineering; the same percentage identified architecture, followed by civil engineering (59 percent).
Despite stable capacity, obtaining higher professional liability insurance limits brings scrutiny. 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 percent indicated they can provide limits exceeding $5 million (up from 40 percent in 2024). In addition, 29 percent indicated they can offer limits of up to $10 million; 6 percent, up to $15 million; 6 percent, up to $20 million; and 12 percent, $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.”
Insurers reveal plans for 2025 rate increases. This year, 67 percent of the insurers surveyed plan to target rate increases on accounts with adverse loss experience; 42 percent will target firms with what they consider higher-risk projects, such as condominiums and other residential construction, and infrastructure. Meanwhile, 42 percent plan to target higher-risk disciplines, including structural engineering, geotech, civil and mechanical engineering. Additionally, 33 percent are planning increases across their entire book of business, reflecting their questions about rate adequacy over time.
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.
“Design firms making acquisitions need to make sure the target’s risk management reflects its projects and disciplines,” said Maxwell. “Review the target’s current claims, evaluate its recent loss history, and structure the risk management program of the combined entity to address any new or heightened exposures.”
With more design firms integrating AI into their processes, 76 percent 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.
“Given the widespread potential of AI-related applications, it’s no surprise that insurers are being cautious,” said Maxwell. “As design firms look for ways to leverage the exciting new opportunities presented by AI, they need to be vigilant in their assessment of related issues, such as algorithmic errors or unintended design flaws, and implement robust safeguards and quality control measures.”
To obtain a complimentary copy of the Ames & Gough Survey, PLI Market 2025: A/E Firms See More Growth Amid Heightened Risks and Rising Costs, email info@amesgough.com.
About Ames & Gough
With more than 1,700 architects, engineering firms, and other construction professionals of all sizes as clients, Ames & Gough is the leading specialty insurance brokerage and risk consulting firm serving the needs of these professionals. Ames & Gough also has established itself as a committed, superior resource for law firms and associations and nonprofit organizations in need of professional liability, management liability, and property/casualty insurance and risk management assistance. Established in 1992, the firm has offices in Boston, MA; Philadelphia, PA; Orlando, FL; Charlotte, NC; and Washington, DC. Clients throughout the U.S. are served by a team of more than 60 professionals and staff located in the five offices. Visit the Ames & Gough website at http://www.amesgough.com/
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