Insurers intend to increase prices for design professional indemnity insurance for the 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 the four insurers that intend to raise rates plan modest increases of 5% or less, but the others anticipate increases 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 called social inflation. This type of inflation “continues to wreak havoc on claim severity, encouraging plaintiffs’ attorneys to seek higher settlements, complicating mediation,” reports Ames & Gough, and driving up defense costs.
Multi-million dollar claims are common, with structural engineering involved in the costliest, followed by civil engineering and architectural design. More than half of the insurers surveyed say they will target increases to companies working on residential construction and roads and highways and other infrastructure projects.
In recent years, large design-build infrastructure projects have produced numerous contractor claims against designers and insurers, ENR has reported.
Some insurers are lowering limits for single accounts, Ames & Gough says.
When it comes to seeking higher limits required by project owners for potential professional liability coverage payouts, many design firms “are now caught between a rock and a hard place,” said Jared Maxwell, vice president and partner of Ames & Gough who co-authored the survey. . Companies trying to get higher limits “face greater underwriting scrutiny to get them” from insurers, he adds.
Maxwell advises companies in this position to try to negotiate with homeowners whether higher limits are warranted and, if they are, to explore alternatives, such as specific additional limit approvals, possibly related to excess insurance coverage of the project.
Another idea is to review the structure of the designer’s insurance program and create layers of coverage with multiple participating insurers, he adds.
