Insurers intend to raise prices of design professional liability insurance for a third consecutive year in 2024, according to a survey of 17 leading providers.
Broker Ames & Gough, which conducted the survey, reports that only one insurer intends to keep its rates flat this year.
Three of four insurers intending to raise rates plan modest increases of 5% or less, but the others foresee hikes of 6% or more.
Driving the increases are two types of inflation: the cost of materials and labor and the cost of very large damage awards by juries in civil lawsuits, often referred to as social inflation. This type of inflation "continues to wreak havoc on claim severity, emboldening plaintiffs' attorneys to seek higher settlements, complicating mediation," Ames & Gough reports, driving up defense costs.
Multimillion dollar claims are common, with structural engineering involved in the costliest ones, followed by civil engineering and architectural design. Over half of the surveyed insurers say they will target increases to firms that work on residential construction and on road and highway and other infrastructure projects.
In recent years, large design-build infrastructure projects have produced numerous claims by contractors against designers and insurers, ENR has reported.
Some insurers are scaling back limits for single accounts, Ames & Gough says.
In seeking higher limits demanded by project owners for potential payouts from professional liability coverage, many design firms "now find themselves between a rock and a hard place," said Jared Maxwell, an Ames & Gough vice president and partner who co-authored the survey. Firms trying for higher limits "face greater underwriting scrutiny to obtain them" from the insurers, he adds.
Maxwell advises firms in that position to try negotiating with owners over whether higher limits are warranted, and, if they are, to explore alternatives, such as specific additional limit endorsements, possibly related to project excess insurance coverage.
Another idea is to review the designer's insurance program structure and build layers of coverage with multiple participating insurers, he adds.