Insurers signal rising risk for AEC firms

Despite recent success, AEC firms may need to navigate headwinds to mitigate risk and sustain growth and profitability.

Although architecture and engineering firms continued to reap the benefits of opportunities stemming from gradual economic growth, many of their professional liability insurers have lingering concerns about the effects of inflation on claim expenses; exposures related to higher risk projects and design disciplines, as well as emerging risks from artificial intelligence.

As a result, 71 percent of insurers participating in the Ames & Gough 2025 survey of 17 leading insurance companies providing professional liability insurance to architects and engineers in the U.S. are planning rate increases; 24 percent plan to hold rates steady, and one insurer expects to reduce rates. Among insurers raising rates, all but one plan modest increases of up to 5 percent with the other planning an increase of 6-10 percent.

Here are 10 key findings and insights from the survey that shed light on the insurers’ concerns and may be helpful to architecture and engineering firms as they develop or refine their business and risk management strategies during the remaining months of 2025 and beyond:

1. Economic and social inflation remain huge challenges. Besides higher costs for construction materials, supplies and labor as leading to higher damages and settlements, most insurers pointed to social inflation, particularly jury awards and litigation trends, as contributing to higher claim payouts. One insurer estimated claim costs are rising 3 percent to 5 percent annually.
2. Insurers continue paying multimillion-dollar claims. Nearly all insurers surveyed reported paying multimillion-dollar claims in 2024 with 82 percent paying a claim between $1 million and $4.9 million and one insurer reported paying a claim that exceeded $20 million.
3. Insurers watching high-risk disciplines. When asked to rank the top three disciplines for claim severity, 70 percent of the insurers surveyed cited structural engineering; the same percentage identified architecture, followed by civil engineering (59 percent).
4. Despite stable capacity obtaining higher professional liability coverage limits comes with added scrutiny. Although some insurers now appear willing to offer more capacity, including limits of $20 million and above, they typically apply greater underwriting scrutiny to these requests. Thus, design firms might try negotiating with owners on whether higher limits are necessary; if so, they might explore alternative structures, such as specific additional limits endorsements/project excess or layered programs.
5. Most insurers target architecture and engineering firms with poor loss experience for rate increases. Two-thirds of the insurers surveyed plan to target rate increases on accounts with adverse loss experience; one in three plan rate increases across their entire books, reflecting widening insurer concerns over rate adequacy over the long term.
6. Insurers wary over heightened design firm M&A activity. Insurers are watching the rise in mergers and acquisitions among design firms – especially deals involving private equity firms, which they fear may hasten the speed of the transactions and cause principals to overlook careful integration of risk management. Architecture and engineering firms making these deals should review the target’s current claims, recent loss history, and structure the combined entity’s risk management to address any new or heightened exposures.
7. AI-driven applications bring new risks. As more design firms integrate AI into their processes, insurers are carefully monitoring these developments and their potential effects on claim activity. As architecture and engineering firms look to leverage new opportunities presented by AI, they need to be vigilant in their assessment of related issues, such as algorithmic errors or unintended design flaws, and implement robust safeguards and quality control measures.
8. State-specific claim trends and risks raise concerns. Some insurers surveyed pointed to what they consider bothersome trends in certain states with a few concerned about Florida, Texas, Colorado, Pennsylvania, New York, and Washington for having adverse loss experience. Others singled out California for elevated risk due to climate and topography changes.
9. Claim complexity and costs, evolving risk landscape, competition, and sustainable pricing among top insurer concerns. While claim complexity and severity continue to be key concerns of insurers, some insurers also had concerns about the combined impact of a potential recession, higher construction costs, and rising claim levels on their books of business along with the challenges associated with balancing competitive pricing of their professional liability coverage against heightened risks.
10. Growing worries over rising climate exposures. The climate-related disasters in 2024 and 2025 have elevated concerns among insurers about whether architecture and engineering firms can adapt to evolving weather conditions in anticipation of potential adjustments to building codes and standards.

To obtain a complimentary copy of the Ames & Gough Survey, PLI Market 2025: A/E Firms See More Growth Amid Heightened Risks and Rising Costs, email info@amesgough.com. 

Jared Maxwell is vice president and partner at Ames & Gough. He can be reached at jmaxwell@amesgough.com.