State of the Insurance Market:
2025 Outlook

The A&E professional liability market is experiencing a period of stability. While there have been a few instances of some insurers either re-underwriting their books of business or even exiting the space, those actions did not have a major impact, and the larger market continues to be driven by competition. Even as claims frequency has leveled off, insurers continue to cite increased claims severity driven by social inflation, erosion of caps on punitive damages, tort reform rollbacks, litigation funding, distrust of corporations, an organized plaintiffs’ bar, higher rates for defense attorneys, and increased cost of materials as factors that substantiate the need for increased professional liability rates.

But even as insurers would like to see a continuation of mid-single-digit rate increases on their books, there is enough competition that quality firms with favorable loss histories can continue to see “flat” renewals or even slight rate decreases. Firms with more claims, or those engaged in high-risk project types or disciplines, such as roads/bridges, condominiums, geotechnical engineering (Geotech) and structural, risk higher rate increases if they are unable to articulate their strong commitment to risk mitigation by way of centralized quality assurance (QA) and quality control (QC) project-intake, contract and related protocols.

Recently, there appears to be a divergence in the economic fortunes of architectural versus engineering firms. Whether attributable to the formerly rising interest rate environment throughout 2024, or the uncertainty over the impact on cost of building materials attributable to proposed tariffs, architectural billings have ebbed even as engineering firms’ revenues continue to climb. Spending on water, transportation, and other public infrastructure projects simply appears to be outpacing private development and, therefore, vertical construction. Even in a “flat” rate environment, when a firm’s revenues are rising, the increased exposure gives rise to higher premiums, often muting underwriters’ desire to charge substantially higher rates. If the divergence between architects and engineers’ relative prosperity continues, the market may begin treating the professions differently from a rate perspective.

For firms dealing with decreased revenues, it’s increasingly important to partner with a specialist broker. During “The Great Recession,” many firms’ revenues in the current and prior fiscal years were down significantly, yet they were being underwritten based on a much higher historical three-year average. There is a wide divergence between professional liability insurers in terms of what they use as the underwriting “rate basis,” but nearly all are consistent in their approach. If your firm’s revenues are rising, approaching insurers that use a historical three-year average could be to your benefit. If revenue declines, you may want to engage carriers that look only at your “last complete fiscal year” in calculating rates.