Insurers Say Malpractice Claims Rising for Architects and Engineers

Increased billings by architecture and engineering firms generated bigger professional liability premiums in 2019, but also led to the first upswing in claims activity in several years, Ames & Gough said in a report this week.

The brokerage, based in McLean, Virginia, said its annual survey of PLI carriers found that 40 percent reported a deteriorating claims experience. Partner Jared Maxwell said some carriers will likely have to raise rates to keep up with increasing losses.

“It’s a trend that we are monitoring. Claims experience is up,” Maxwell said during a telephone interview. “But it’s not a doomsday sort of thing.”

Many carriers pointed to “social inflation” as a cost driver. Reciting a complaint that is very familiar to commercial auto carriers, they say juries are handing down larger and larger awards. Some specifically cited litigation funding firms as a source of those larger awards.

“Insurers are keenly aware of this growing phenomenon and now pay close attention to how it impacts insurers and insureds, alike,” the report says.

Ames & Gough surveyed 23 professional liability carriers out of about 40 in the market, Maxwell said. He said the 15 companies that answered the surveys hold the bulk of the PLI market share.

According to the survey, 80 percent of the carriers saw PLI premium growth in 2019. Nearly half of those had increases of 10 percent of more.

Among the 40 percent of carriers that reported an increase in claims, a majority said those losses increased by as much as 10 percent. On the other hand, the majority of insurers that experienced better claims results saw only modest improvements of slightly above 2 percent.

One trend that I am seeing is higher limit demands across the board regardless of discipline and/or complexity of the project. We are inundated daily with specific project excess limit requests.”

The insurers pointed to structural engineering as the discipline with the highest claim severity, followed by architecture, mechanical engineering and civil engineering. Much of the increased claims activity was centered specifically on residential and infrastructure projects.

Maxwell said increasing claims will put pressure on rates, the first time that has happened to the PLI line since the nation began recovering from the Great Recession.

“There was a long stretch there where everybody was very happy,” he said. “Now, for whatever reason, we are seeing some claims creeping into the market.”

The report said 82 percent of carriers surveyed are seeking increases of 5 percent or less, while the remaining insurers are planning to raise rates by 6 to 10 percent.

The report says underwriters are especially wary of high-risk disciplines, including structural engineering and geotechnical engineering. Carriers are also concerned about the complexity of contracts, design reliance and increased costs.

The report included comments from some of the insurance executives who competed the survey.

“Severity is up and attritional losses are up due to, among other things, claims inflation and social inflation,” stated Jim Schwartz, A&E focus group leader for Beazley Group. After a decade in which PLI pricing has been driven down substantially, a correction is

needed.”