Professional Liability Insurance: 2022 Trends

The AIA Trust together with the American Council of Engineering Companies (ACEC) and the National Society for Professional Engineers (NSPE) work annually to conduct an insurance carrier review and interview of professional liability trends and risk management issues.  Following is a summary of highlights for 2022 in addition to complimentary useful resources made available to you by the AIA Trust:

Social Inflation + Nuclear Decisions

Two phrases uttered multiple times among carriers affecting renewal and initial premium rates were social inflation and nuclear decisions.

• Social inflation appears to be trending based on the societal perception that corporations and firms should pay more on claims if found liable. This coincides with a concept supporting the notion of the standard of care being without fault.
• Nuclear decisions are considered a direct result of social inflation. They refer primarily to jury award decisions that go far beyond what would typically be an award for a given claim.  In particular, many of these claims and decisions are being seen with horizontal infrastructure.

Related resources:

Article: Understanding the Standard of Care

Article: Client Selection: Number One Professional Liability RIsk

Article: Do you know? By Practice Coach – Language you should include in contracts

Claim trends:

• Bodily injury claims, and payouts, are on the rise. The majority of bodily injury claims were reported to be related most frequently to road work, but general construction sites were not immune.  An unexpected specific mention as an example of this was in regard to bike plan projects.
• States with the highest claims were reported to be: California, Florida, Illinois, New York, Pennsylvania and Texas.
• Custom, luxury single family residences have a high incidence of claims.

Related resources:

Guides: Claims Studies & Guides

Article: Bodily Injury Claims: More Shock Than Severity

Study: Residential Claims Study

Rates:

• Discovery costs are affecting premium rates. In the digital age with so much information to cover, confirm, and synthesize, discovery is much more expensive.
• Project specific insurance is becoming more costly to obtain.

Related resources:

Article: The Effect of Economic Conditions on Insurance Rates

Sustainably speaking:

• Considering resilience in design is something designers and engineers should bear in mind. This stems from the perception that standard of care in the public’s eye is perfection and the expectation is precision.

Related resources:

Article: A New Sustainable Standard for Architects

Article: Protecting Your Firm When Going Green

Changes related to COVID:

• There has not been the anticipated wave of claims due to COVID and supply chain delays. However, providers are still cautious because of the time it can take to make a claim – this can be anywhere from 18 months to two years, but in some instances can be three or even 5 years. In addition, many carriers noted that courts have been moving through cases at a slower rate than pre-COVID.

Related resources:

Article: Pandemic Risks to Your Firm

Article: COVID-19: What About My Insurance?

Cyber Insurance:

• When asked about Cyber Insurance the different carriers interviewed stressed that standalone cyber insurance is advisable and encouraged.  The coverage on professional liability insurance is typically only third-party coverage and is greatly limited.

Related resources:

Benefit: Cyber Liability Insurance

Tool: Cyber Risk Kit

Guide: An Architect’s Guide to Managing Cyber Threats

Article: The Threat is Real: Cyber Attacks Against Architectural Firms

Article: Take Cyber Liability Exposures Seriously

Other items of note:

• Carriers are not seeing additional risk in firms providing only forensic services. However, additional risk is assigned to firms that design proposed remedies along with forensic services.
• Artificial intelligence is expected to play a role in the future of the profession though at this time it is not clear what that role will be or how it may affect premiums.
• Mergers and Acquisitions always increase risk exposure during the transition time. (Personnel shifts, projects already under contract, time devoted to the actual merger or purchase that is not spent on project.)
• Progressive design build project delivery is on the rise.
• Integrated Project Delivery is looked at as a stable method. Carriers stated that while this method shares risk among the Owner, Architect and Contractor, carriers prefer their policy holders be found at-fault before any payouts. IPD shares risk without fault.

Helpful resources:

Risk report:  The Risks and Rewards of Integrated Project Delivery (IPD)

Webinar:  IPD Risks and Rewards

Article: Project-Based IPD Insurance Coverage

Article:  Insurance Concerns in Mergers and Acquisitions

Conclusion

While we saw some overlap of trends from 2021, the areas of highest risk for the A/E industry continue to evolve and the insurance industry continues to adjust accordingly. Ultimately, communicating and managing client expectations continues to be the best risk management approach. Aligning a client’s expectations with the standard of care, and proactively utilizing the available risk management resources from professional liability insurance carriers, as well as the resources found within the AIA Trust will be important as you move through 2023.

Do you have questions for carriers that you’d like answered in 2023? Email us at aiatrust@aia.org and let us know!