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OPINION
Liability insurance insights
AEC firms see growth opportunities amid gradual U.S. economic rebound clouded by insurer concerns over inflation, claim costs, higher risks.
E ven as AEC firms throughout the U.S. continue to benefit from growth opportunities brought about by the U.S. economy’s gradual recovery, their professional liability insurers have concerns about the effects of economic and social inflation on claim expenses, as well as heightened risks associated with specific project types, professional design disciplines, and evolving project delivery methods.
Jared Maxwell
As a result, nearly all insurers participating in the Ames & Gough 2024 survey of 17 leading insurance companies providing professional liability insurance to architects and engineers in the U.S. are planning to raise rates with only one insurer seeking to keep rates flat. Specifically, among the insurers raising rates, 75 percent are planning modest increases (up to 5 percent) while 25 percent plan rate increases of 6 percent or more. Here are a dozen key findings and insights from the survey that shed light on insurers’ concerns that may be helpful to AEC firms as they develop or refine their business strategies going forward: 1. Construction inflation ratchets up claim expenses. Of the insurers surveyed, only 6 percent saw claim severity decrease in 2023 compared to 18 percent whose claim experience worsened in 2023 on a year-over-year basis. Four in five pointed to inflation for driving up costs, emphasizing that construction inflation exceeds headline inflation with higher costs for materials, supplies, and labor.
2. Social inflation remains unchecked. The insurers surveyed continued to cite social inflation for wreaking havoc on claim severity, emboldening plaintiffs’ attorneys to seek higher settlements, complicating mediation, and driving up legal defense costs. 3. Most insurers report paying multimillion-dollar claims. Of the insurers surveyed, nearly one in four paid a claim of $5 million or more in 2023, including 12 percent paying claims of $10 million or more. The largest claims often involved what insurers consider high-risk projects or disciplines, particularly structural engineering, civil engineering and architecture. 4. Insurers wary of states with elevated risks. Some insurers surveyed identified Florida and Texas as states with concentrations of higher risk projects, such as schools, condominiums, and multifamily construction; meanwhile, New Jersey and New York raised concerns over legal environments
Cady Sinks
See JARED MAXWELL & CADY SINKS, page 8
THE ZWEIG LETTER JUNE 10, 2024, ISSUE 1541
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