Contractors that have moved into design-build, software companies and consultants who have left big firms to work alone are driving demand for errors and omissions (E&O) insurance, according to Devin Brown, vice president, specialty at Vailo, a managing general agent.
In an interview with Insurance Business, Brown said the growth reflects a broader move toward a knowledge-based economy, and that E&O claims remain mostly familiar, with AI-related claims yet to arrive. Social engineering fraud, a cyber or crime exposure rather than an E&O one, is on the rise, he said.
Brown said the economy is shifting toward knowledge-based work. Manufacturing is a smaller part of it than before, he said, and there are more consultants.
Read more: E&O is claims-made, and a lapsed policy can leave a business uncovered
Many people who worked at large organizations are starting sole-proprietor consulting businesses, he said, taking the expertise they built at a big firm and going out on their own. Those owner-operators need E&O cover as well, he noted.
Brown also pointed to consolidation, which he said is happening across every segment. Many businesses are looking to integrate vertically, he said, because scale makes things cheaper and gives them an advantage over smaller competitors. In the process, he said, they are building design, consulting or advice components into businesses that may not have had them.
Anyone giving advice, opinions or inspections takes on exposure that a commercial general liability policy was not designed to cover, he said.
Brown said the example that comes most to mind is in construction. Shops that were historically focused on general contracting are moving into design-build, he said, and more companies are bidding on projects by saying “we’ll take care of everything for you.”
That means handling the permitting, the design and the engineering, he said. A fully integrated design team has advantages, he said, but “you also take on more risk when you do that.”
The difference is in what the contractor is promising, Brown said. A contractor that brings in tradespeople to do the work is in a different position from one that says it will make sure everything is zoned and specified correctly, that load-bearing elements are appropriate and that the design is sound.
The technology sector is the other area he highlighted. Brown said there are many more software-as-a-service companies than there used to be. They have always been aware of E&O and cyber exposures, he said, and the two often intertwine. The growth of the sector is also driving demand for cover, he added.
Familiar claims, and a risk outside E&O
Brown said claims vary by segment, because E&O is a large category covering anyone who provides advice or professional services.
“Claims remain fairly similar to what they’ve always been historically,” he said.
On AI, he said, claims are coming, but he has not seen a meaningful number yet. Most small business owners he speaks to use a chatbot or a large language model to cover blind spots or get stronger at what they already do, he said. Few have integrated AI deeply into their business.
Most of the businesses he sees use AI as an assistant to what they would normally do, Brown said, “as opposed to letting the AI make the decisions itself.” As more companies build AI into their operating models, he said, he expects to see more AI-related claims.
Advances in quality control and quality assurance, along with tighter contract language, have been favourable to architects and engineers, Brown said, although the basis of claims remains much the same.
Outside E&O, the picture is different.
Read more: The economy is turning ordinary design mistakes into lawsuits, source warns
“Social engineering fraud, on the other hand, is the big one,” Brown said.
Social engineering losses are not technically an E&O exposure, he said. They are typically covered under cyber or crime policies, which are sometimes added as an extension to an E&O policy or quoted alongside one, and a standard E&O policy will often exclude them.
Cybercrime is where he sees a large increase, Brown said, and most businesses, especially professionals, should consider that cover alongside E&O, CGL and other core lines.
He said many people would be surprised at how much of an insurer’s total E&O losses goes to defence costs, as opposed to indemnity.
Plaintiffs need to name their defendants early, he said, so they can bring an action against them if needed, and discovery sometimes shows a party was more involved than first thought. Much of an E&O claim is really defence, he said, which shapes settlement strategy.
“There’s really no reason not to name everybody involved in a matter, regardless of whether or not you feel they’re primarily responsible,” Brown said.
