Claims against architects and engineers are arriving more often, and the reason has less to do with design quality than with the economics of the projects they work on, according to a source who leads a financial lines practice at a global specialty insurer, speaking to Insurance Business Canada on condition of anonymity.
The source said their team is watching claims activity in the architects and engineers space closely, monitoring both frequency and severity. The two measures are moving differently, and separating them matters for understanding what's actually driving the trend.
"There has been a greater frequency of claims, but we're not seeing a dramatic change in severity," the source said. Severity has been relatively stable for the most part compared to the past two years, they said, while the number of claims per insured has climbed steadily over that same window.
Their interpretation ties the trend directly to the state of the Canadian economy rather than to any decline in the quality of design work itself. Claims in this space typically come from contractors or project owners pursuing engineering or architecture firms over design flaws that caused them a financial loss or financial impairment. And the willingness to pursue those claims, in their reading, starts with the economics of the projects themselves. The Canadian economy has delivered mixed results over the past two years, the source said, and anyone who has taken on a project in that window, whether to build or to renovate, has had to do it with lower margins than they might have a few years earlier.
"Those lower margins translate to less room for mistakes," they said. "If there is a mistake or impairment, contractors or project owners are more likely to go against their third-party design team to rectify that mistake."
In other words, the same design error that might once have been absorbed as a manageable cost overrun now has a much better chance of ending up as a formal claim, simply because the project owner or contractor has less financial cushion to work with.
The rise in claims is landing in a market the source does not expect to firm up any time soon. The professional lines market has not bottomed out, they said, and they do not see it doing so this year, with renewal premiums falling in the range of 5% to 10% year over year and new business priced even more aggressively to win it. Barring adverse claims experience or a major event that shocks the market, they expect similar conditions to persist into next year.
That combination is what concerns them: claims frequency creeping up just as buyers have never had more incentive to shop on price, with some of the capacity chasing accounts very new to the space. Some of the new entrants, they noted, are markets that have only existed for the past two or three years, meaning they have limited track record for how they'll behave once claims volume actually increases.
Against that backdrop, their advice to brokers and their clients is to weigh factors that do not show up on a quote.
"I would really appreciate if both brokers and their clients would look at their insurer's longevity," the source said. "How long have they been in the market? What are their ratings? Do they know the underwriters? I think that really would make a difference."
The claims record belongs on that list too, they said, since how an insurer actually behaves once a claim is filed matters more than anything printed on the policy itself.
"What's the insurer's record in terms of paying claims, and how do they pay claims?" they said. "Do they pay claims quickly, or does it take months and months to get correspondence back and forth before decisions are made?" For a professional facing a claim from a contractor or project owner, that difference is effectively the product being sold.
"Price should not be everything," the source said, "because if you're buying on price, I think you will be disappointed."
They were equally direct about why that often doesn't happen in practice. Clients are dollar-sensitive for reasons they understand, they said, with CFOs handed budgets they need to hit and little slack to work with when premiums come up for renewal.
"Until the Canadian economy gets out of the rut that it is in, I think that's going to be top of mind for many clients," the source said.
That leaves the professional lines market in a quietly uncomfortable position. The same economic pressure that is pushing project owners and contractors to pursue design firms over mistakes is pushing those firms' insurance buyers toward the cheapest available cover, some of it from markets that have never been through a claims cycle of their own. The moment the two trends meet is precisely when the difference between carriers shows up most clearly, and by then, the policy has already been bought.
