Still navigating the fallout

May 29, 2022

Despite slowing infection rates, AEC firms and their insurers may still endure the effects of the pandemic for many months to come.

Even as the spread of COVID-19 infections appears to be waning, design firms may be dealing with the enduring effects of the pandemic for many months to come. Several insurers providing architects and engineers professional liability insurance expressed their concerns about the evolving risks facing their clients in 2022 and how this might be reflected in their rating plans and underwriting decisions.

Here are some key insights from the Ames & Gough 2022 survey of 16 leading insurance companies providing professional liability insurance to AEC firms in the U.S. on critical concerns influencing their decision-making:

  1. Economic and social inflation driving up claim costs. The threat of inflation now ranks among insurers’ top concerns that could impact professional liability claim costs and premiums this year. Besides economic inflation, insurers point to social inflation – especially increased litigation, broad interpretation of insurance policy coverages, plaintiff-friendly legal decisions, and larger jury awards – as a major driver of higher claim costs.
  2. Supply chain disruptions may have ripple effects. One of the enduring impacts of the COVID-19 pandemic has been issues arising from supply chain disruptions. Notably, 94 percent of the insurers anticipate that supply chain interruptions will lead to potential claims for the AEC industry. These disruptions may trigger higher material costs, project delays, unavailability of critical materials, and higher costs fueling inflation and resulting in higher overall claim costs.
  3. Fallout from the “great resignation.” The survey found 63 percent of insurers are concerned about the potential for the great resignation to result in employee shortages at AEC firms and claims. The most significant potential consequences involve increased risks of design and technical errors, shortages of workers leading to project delays, and loss of institutional knowledge at design firms to keep projects on track and to anticipate and address potential issues.
  4. Fears over growing cyber threats. The explosion of ransomware claims during the pandemic has resulted in large underwriting losses, which in turn are fueling cyber-insurance premium rate increases of 15 percent to 50 percent. Besides higher premium costs, design firms might see coverage restrictions, further scrutiny by underwriters of their cybersecurity practices, and exclusions or sublimits for losses arising from various types of cyber incidents. Firms failing to demonstrate appropriate cybersecurity protocols or that have experienced cyber incidents in the past may find coverage more difficult to obtain.
  5. More insurers question “rate adequacy.” A growing number of insurers now wonder about the sustainability of competitive rates in the aftermath of a decade of relative rate stability amid rising claims. Thus, it may not be surprising that this year, 81 percent of insurers are seeking rate increases and 31 percent plan to apply higher rates across their entire business.
  6. Addressing capacity crunch may take extra effort. Even as more clients require AEC firms to carry higher limits of professional liability coverage, insurers surveyed generally have a stable amount of capacity to meet those requests. Nonetheless, design firms and their insurance advisors may need to be creative in obtaining higher insurance limits. For instance, to save costs, they might opt for project-specific excess or negotiate with clients to validate requests for higher limits. In some cases, increased requirements may be outsized for the overall exposure. Further, when elevated limit requests are cascaded to subconsultants, they may be both impractical and unaffordable.
  7. Heightened M&A activity calls for greater diligence. With AEC firms involved in some 400 mergers and acquisitions last year, insurers are carefully monitoring the impact of deals on the risk profile of the acquiring firm and the combined entity. In the meantime, AEC firms making acquisitions need to apply due diligence to all aspects of target firms – from their disciplines and client mix to the adequacy of their insurance programs and status of any outstanding claims or liabilities. Under-insured risks can significantly change the terms of a deal or cancel it altogether.
  8. High-risk projects/disciplines draw scrutiny. In pursuing new opportunities as they emerge from the pandemic, some design firms might consider widening their practice to encompass different projects or to expand their capabilities to include higher risk disciplines. It’s worth noting that, from an underwriting perspective, insurers continue to scrutinize what they consider higher risk projects, such as condominiums and schools, and high-risk disciplines, especially geotechnical engineering, structural engineering, and architecture. Of insurers surveyed, 77 percent plan to target rate increases to firms with high-risk projects or disciplines.
  9. Underwriters sharpen focus on regional loss trends. As they continue to examine heightened exposures from an underwriting perspective, more insurers are turning their attention to states and jurisdictions either historically considered higher risk or with generally adverse loss experience. This year, 38 percent of insurers surveyed plan to apply rate increases to states in this category, such as California, Florida, New Jersey, and Texas.
  10. Not the time to relax risk management. While the prospects of emerging from the throes of the pandemic are exciting news for all industries, now is not the time for design firms to relax any of their risk management measures. With the potential for worker shortages, inflation, supply chain issues, and escalating professional liability premium and claim costs, AEC firms are well-advised to maintain sound risk management. That includes practicing good contractual hygiene, ensuring timely incident and claim reporting, and carefully reviewing their cybersecurity measures, as well as those of their subs, and the adequacy of their related insurance protection.

For a copy of the Ames & Gough Survey, PLI Market 2022: A/E Firms Face Headwinds Due to Adverse Economic Factors, email

Jared Maxwell, vice president and partner, Ames & Gough, and Cady Sinks, assistant vice president, Ames & Gough. Jared Maxwell can be reached at; Cady Sinks can be reached at

Click here to read this week's issue of The Zweig Letter!

About Zweig Group

Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.