While most commercial insurance lines experienced rate decreases in Q1 2025—with property down 8.2%, general liability down 6.4%, and workers' comp down 11.3%—professional liability and errors & omissions (E&O) insurance continues to buck the trend, posting a +2.1% average rate increase with much steeper hikes for specific industries. Technology companies face 5-10% increases, while design professionals (architects, engineers) see 3-8% hikes, maintaining hard market conditions that began in 2021.
The divergence reflects fundamental differences in professional liability loss patterns compared to other coverage types. While property and general liability losses are stabilizing, professional liability claims are growing in frequency (more lawsuits), severity (larger settlements), and complexity (AI liability, crypto litigation, design defect claims)—creating ongoing underwriting challenges that prevent the softening seen elsewhere.
Why Professional Liability Isn't Softening
Rising Claim Frequency
Tech E&O claims up 34% (2023-2024):
- Software failures causing business interruption
- Data breaches via third-party vendors
- AI/ML algorithm failures (emerging area)
- Cloud outages affecting customers
Design professional claims up 28%:
- Construction defect litigation increasing
- Expert witness costs rising
- Regulatory compliance failures (building codes, environmental)
Increasing Claim Severity
Average tech E&O claim:
- 2020: $187,000
- 2024: $342,000 (+83%)
Average design professional claim:
- 2020: $215,000
- 2024: $396,000 (+84%)
Drivers:
- Larger contracts = larger liability exposure
- Business interruption damages escalating
- Defense costs rising (complex litigation, multiple experts)
Emerging Risk Categories
AI/ML liability (no historical data):
- Algorithmic bias claims
- Autonomous system failures
- Training data copyright issues
- Insurers pricing conservatively due to uncertainty
Cyber/E&O convergence:
- Professional services increasingly cloud-based
- Blurred lines between E&O and cyber liability
- Coverage disputes increasing
Regulatory enforcement:
- GDPR, CCPA creating new liability vectors
- Professional licensing board actions increasing
- SEC cybersecurity disclosure requirements (tech companies)
Rate Increases by Industry
Technology Sectors
SaaS/Cloud Services: +8% to +12%
- Highest increases due to business interruption exposure
- Outages affecting thousands of customers simultaneously
- Cumulative damages from prolonged service disruptions
Cybersecurity Vendors: +10% to +15%
- Irony: Companies selling security facing highest E&O rates
- Failure to detect breaches = major liability
- High-profile claims (SolarWinds, etc.) driving rates
AI/ML Companies: +12% to +18%
- Emerging risk with limited loss history
- Algorithmic bias and discrimination claims
- Intellectual property disputes
Fintech: +6% to +10%
- Regulatory scrutiny increasing
- Transaction errors creating large exposures
- Crypto-related litigation
Custom Software Development: +5% to +9%
- Project failure claims common
- Scope disputes and missed deadlines
- Integration failures
Design Professional Sectors
Structural Engineers: +6% to +10%
- Building collapse/failure high-severity events
- Expert witness costs escalating
- Long tail exposure (claims 5-15 years after project)
Architects: +4% to +8%
- Aesthetic/functional disputes increasing
- ADA compliance litigation
- Sustainability certification claims
Civil Engineers: +5% to +9%
- Infrastructure project complexity
- Environmental impact disputes
- Municipal project claims
MEP Engineers: +3% to +7%
- Building system failures
- Energy code compliance
- HVAC sizing errors
Other Professional Services
Management Consultants: +3% to +6%
- Implementation failure claims
- ROI projection disputes
- Change management failures
Financial Advisors: +4% to +8%
- Fiduciary duty claims
- Suitability issues
- Crypto/alternative investment losses
Legal Malpractice: +5% to +10%
- Missed statute of limitations
- Conflict of interest claims
- Fee disputes
Coverage Restrictions Increasing
Beyond rate increases, carriers tightening coverage terms:
Sublimits
Cyber-related E&O losses:
- Previously: Full limit available
- Now: $500K-$1M sublimit common
- Impact: Large cyber-related E&O claims exceed sublimit
Prior acts coverage:
- Retroactive dates moving forward
- Claims-made basis means old work may not be covered
Exclusions
AI/ML-specific exclusions:
- Some carriers excluding algorithmic failures entirely
- Others covering with sublimits or higher deductibles
Cryptocurrency exclusions:
- Many carriers excluding crypto-related work
- Available through specialized markets at 50-100% premium surcharge
Regulatory action exclusions:
- SEC, FTC, state AG actions often excluded
- Coverage available through regulatory sublimits
Higher Deductibles
Forcing risk retention:
- $25K deductibles becoming standard (vs. $10K previously)
- $50K-$100K deductibles for high-risk sectors
- Deductibles applying per claim (multiple claims = multiple deductibles)
What Tech Companies and Design Professionals Can Do
Strategy 1: Accept Moderate Rate Increases (Don't Chase Lowest Price)
Reality: Professional liability hard market isn't changing soon Implication: Trying to avoid increases by switching carriers often backfires
Why carrier hopping fails:
- New carrier may non-renew after claims
- Prior acts coverage often lost when switching
- Claims-made basis creates gaps
Better approach: Stay with quality carrier, accept modest increases, maintain long-term relationship
Exception: If increase >15%, worth shopping (but expect limited improvement)
Strategy 2: Optimize Deductibles
Higher deductible = lower premium:
- Increasing from $10K to $25K: 12-18% savings
- Increasing to $50K: 25-35% savings
Works if:
- Financial reserves exist to fund deductibles
- Claims frequency low (confident won't hit multiple deductibles)
Example:
- Premium at $10K deductible: $42,000
- Premium at $25K deductible: $35,700 (15% savings)
- Annual savings: $6,300
- Break-even: One claim every 2.4 years
Strategy 3: Risk Management Programs (Demonstrate Claims Prevention)
Underwriters reward documented risk management:
- Quality assurance procedures
- Project management protocols
- Client screening processes
- Contract review procedures
- Professional development/training
Impact: 8-15% rate reduction vs. businesses without documentation
Cost: 20-40 hours annually to document + $2,000-5,000 consultant fees ROI: On $40K premium, 10% savings = $4,000 annually
Strategy 4: Contract Review and Transfer (Limit Liability)
Professional contracts should:
- Limit liability to fees earned (or multiple of fees)
- Require client insurance (shift some risk)
- Define scope precisely (prevent scope creep claims)
- Include dispute resolution (avoid litigation)
Impact on insurance:
- Limited liability contracts reduce exposure = better rates
- Indemnification agreements may be required to be insured
Legal cost: $2,000-5,000 for contract templates Savings: 5-12% on insurance + reduced claim exposure
Strategy 5: Separate Cyber Coverage from E&O
Problem: Cyber-related E&O claims increasing E&O policies: Often sublimit cyber exposure to $500K-$1M
Solution: Buy standalone cyber liability
- $2-5M cyber limit
- Covers cyber events E&O policy excludes/sublimits
- Often cheaper than increasing E&O limit
Example:
- Increasing E&O limit $2M → $5M to cover cyber: +$18,000
- Buying separate $3M cyber policy: $8,500
- Savings: $9,500 for better coverage
Specialized Markets and Alternative Solutions
Industry-Specific Programs
Tech E&O programs:
- Beazley
- Hiscox
- Coalition (combines E&O + cyber)
- Chubb Studio (creative/digital agencies)
Often 10-20% cheaper than standard market for same risk
Design professional programs:
- XL Catlin ProFile
- AIG Design Professional
- Liberty Mutual DesignPro
Benefits: Industry expertise, claims handling, lower rates
Risk Retention Groups (RRGs)
Member-owned insurers for specific professions:
- DPIC (design professionals)
- PRI (engineers)
- Various tech sector RRGs
Advantages:
- Typically 15-25% below market rates
- Member dividends in profitable years
- Industry-specific knowledge
Requirements: Join association, meet underwriting standards
Claims-Made vs. Occurrence Policies
Most E&O is claims-made: Claim must be made during policy period
Consideration: Extended reporting period (tail) coverage
- Needed if switching carriers or retiring
- Costs 150-300% of annual premium
- Factor into total cost of insurance
Market Outlook: When Will E&O Soften?
Factors preventing softening:
- Claim frequency still increasing
- Severity showing no signs of declining
- AI and emerging tech creating uncertainty
- Social inflation affecting professional liability verdicts
Potential timeline:
- 2025-2026: Continued hardening (+4% to +8% average)
- 2027: Stabilization (flat to +3%)
- 2028+: Possible modest softening
Reality: Professional liability lags other lines by 2-3 years
Planning horizon: Budget for 3-5 more years of rate increases
Key Takeaways
E&O is bucking soft market trends: While property and casualty lines soften, professional liability continues hardening.
Tech and design sectors hit hardest: 5-10% increases vs. 2% average across all E&O.
Claim trends support rates: Frequency and severity both increasing, justifying carrier pricing.
Coverage is tightening: Sublimits, exclusions, and higher deductibles becoming standard.
Risk management is critical: Documented programs can offset 8-15% of rate increases.
Specialized markets offer better value: Industry programs and RRGs typically 10-25% cheaper than standard carriers.
Contract terms matter: Limiting liability through contracts reduces exposure and premiums.
Plan for continued increases: Budget 5-8% annual E&O increases through 2027.
The professional liability E&O hard market reflects genuine deterioration in loss experience, not just market cycle dynamics. Technology companies and design professionals should focus on risk management, contract optimization, and accessing specialized insurance markets rather than expecting the soft market trends affecting other lines to reach E&O in the near term.
Managing professional liability insurance in a hard market? Accessing specialized programs, optimizing coverage structure, and implementing risk management that earns underwriting credits requires expertise in professional liability insurance. Work with brokers who specialize in your industry and understand the complex E&O landscape.
Sources: Council of Insurance Agents & Brokers Market Survey, Professional Liability Underwriting Society, Tech E&O market reports, Design Professional Liability claims data