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How Agents Can Assist A&E Clients as Claims Severity Increases

While professional liability limits for many architecture & engineering firms have remained consistent, a changing landscape and severity of court verdicts is causing some carriers to reevaluate their appetite.
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how agents can assist a&e clients as claims severity increases

A recent Gallup poll is indicative of what many big businesses are well aware of: Americans' overall view of big business is negative. The public's sentiment toward large businesses and corporations continues to deteriorate, with an anti-corporate culture becoming more prevalent than ever. 

In fact, over half of Americans (53%) take a negative view of large companies after a decade of overall positive views, according to the poll. This dislike is having an adverse impact on companies facing litigation, as the perception results in increasingly expensive jury awards. This problem is also being exacerbated by a backlog of pending lawsuits, as courts were forced to shut down during the COVID-19 pandemic. 

This facet of social inflation is impacting many firms, and architecture & engineering firms are no exception. While these firms are prospering in a construction industry that continues to expand, insurers providing professional liability coverage to A&E businesses are seeing claims increase.

“Claims severity is increasing across the board, which is driven by social inflation, where juries are awarding increasingly large penalties and fines," says Tyler Peterson, senior vice president, head of professional risks, Hiscox USA.

Additionally, “larger verdicts and settlements have been a growing trend over the past five years as issues around social inflation, claims resulting from condominium and bridge collapses, and serious bodily injury claims are having an impact in the marketplace," says Kevin Collins, A&E practice leader, Victor U.S. “The real drivers, though, track with the economy and the increase in the costs of materials and labor that are increasing the cost of your average claim."

And while capacity remains for many segments of the professional liability market, “areas such as lawyers, A&E, insurance agents and brokers, real estate developers, and manufacturers E&O are seeing capacity issues more frequently than the rest of the market," says Nathon Gurto, management & professional liability leader, Victor U.S.

In these instances, agents are forced to be creative when working with carriers in seeking the capacity their clients need. “There is no question that carriers focused on long-term sustainability have become more selective in the risks they underwrite, particularly in the form of reduced limits of liability, often to $5 million or less, as well as increases in rates and retentions," says John Lecci, senior director, professional liability, Markel. “These changes are a result of the severe nature of losses in both high-profile jury awards and, more often, less publicized settlements."

While professional liability limits for many A&E firms have remained consistent, “the changing landscape and severity of court verdicts is causing some carriers to reevaluate their appetite," Peterson says. “This means agents should bake in additional time to the renewal process than usual and encourage A&E firms to complete their renewal applications earlier."

Also, “they should be prepared that their policy structure may look different than it has in the past—there may be two to three carriers required to be on the program to maintain the limits they had in previous years," Peterson adds.

Essentially, A&E firms seeking “these highly specialized, professional liability policies tend to be tougher to write profitably given a number of differing factors and, frankly, require a highly specialized form of understanding and underwriting that many carriers do not have," Gurto says. 

For agents, “making sure that A&E clients have the specific knowledge of what claims are most prevalent and the potential impact to their insurance program can help an A&E firm decide whether to pursue certain work and where their efforts might be better spent," says Ron Kiefer, senior vice president, executive lines, Risk Placement Services (RPS). “Many A&E firms operate in their specific bubble and aren't necessarily aware of the latest claims data. The more detailed information an agent can provide to their clients, the better decisions clients can make."

Olivia Overman is IA content editor.

Monday, July 31, 2023
Architects & Engineers
Big I Markets