Claims on the Rise for Architects & Engineers

Architecture and engineering are experiencing a significant rise in claims activity, according to the annual survey conducted by Ames & Goughs. Last year’s report saw that only 6 percent of insurers surveyed had adverse claims. In this year’s survey, that number spiked to 40 percent of insurers reporting a worsening in their claims experience. What’s more, is that the majority of those insurers stated that their losses had increased by 10 percent. Of those surveyed, 33 percent also indicated that they had more claims related to project types within residential and infrastructure. As an insurance agent, you should reach out to your architecture and engineering clients and make them aware of the industry trends described below.

Which Disciplines are Being Hit Hardest?

The architecture and engineering fields are quite broad in their range of unique jobs. The breakdown, concerning which specific vocations within both disciplines are experiencing the most claims, is as follows.

  • Highest Frequency of Claims: Architects and civil engineers ahave the highest reported frequency of claims, with engineers and mechanical engineers right behind them.
  • Highest Claim Severity: Structural engineering is overwhelmingly the highest, followed by architecture, mechanical engineering, and civil engineering.
  • Underwriting Assessments: 93% of insurers named structural engineering at the top in terms of risk. Mechanical engineering, geotechnical engineering, and architecture were also cited as having significant risks.

Why Are Claims on the Rise?

The Ames & Goughs report notes that insurers have detected specific areas of concern that are having the most adverse impact on design firms. These include construction complexity, increased costs, design resiliency concerning climate change, and state laws.

Other factors contributing to the rise in claims are social trends. Insurers are concerned about the rise in “social inflation” and legal financing. They theorize that these are affecting the increase in claim severity. Social inflation is correlated with higher litigation costs as a result of sympathetic jury awards. Prolonged litigation has been ratcheting up defense costs, thus increasing legal financing.

What Can Architects and Engineers Do?

Though you as an insurance agent have no power over changing policy in your clients’ fields, you can inform them about the precautions laid out by Ames & Gough. Their report states that design firms must be proactive about adopting and adhering to thorough risk management protocols, especially in the event of a merger or acquisition. Ames & Gough also recommend that firms remain watchful of the constant development of market conditions.

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