Allianz ranks top emerging liability trends for professional services firms

AGCS’ professional indemnity report highlights 11 trends driving future insurance claims activity.

Trends include evolving building safety laws, ‘hackers for hire’, inflation and untrained use of generative AI tools.

AGCS analysis shows that the legal, construction and insurance sectors are the industries most impacted by large professional indemnity claims.

Download the full report HERE

Architects and engineers face greater scrutiny over building and fire safety defects. Financial services professionals may be accused of mismanaging investment funds negatively impacted by inflation. A lawyer’s untrained use of artificial intelligence (AI) tools when preparing client cases could result in an error-ridden brief. The emerging risk landscape for professional services firms is multi-faceted.

A new report from professional indemnity (PI) insurer Allianz Commercial identifies a number of emerging liability trends for companies, ranking them by level of anticipated impact, potential drivers of loss activity and the likely ease with which these risks may be mitigated. Impacted professions include management consultants, auditors, accountants, architects, engineers, insurance brokers, solicitors and lawyers, and media executives, all of whom may be held responsible for losses that arise from a perceived breach of their duties.

“Although exposures vary, all these professions face a wide range of civil liability exposures which need to be adequately addressed and mitigated. These could range from accusations of negligence or omissions resulting in harm or damage to the client, to misrepresentation, failure to identify fraudulent activity, and the unintentional breach of contract, intellectual property rights or confidentiality, to regulatory investigations and actions,” says Diego Assef, Head of the Global Practice Group, Professional Indemnity Claims at AGCS.

Building safety laws and digital dangers such as ‘hackers for hire’ top the trends heatmap

AGCS’ global PI claims experts identify and rank 11 emerging trends in the report with some professions being more exposed than others depending on the risk and the nature of their business. Evolving legislation related to building safety and cyber crime, social engineering and data loss, are both ranked #1 (very high – a critical impact to operations or loss severity could be expected). Although building safety has predominantly been a UK issue following the Grenfell Tower fire tragedy in 2017 some impact will be felt globally to the report notes. In the UK, extended liability periods for building and fire safety defects could bring new legal claims against manufacturers and suppliers, with a potential domino effect on all specialists in a construction project, such as architects, engineers and design and build contractors for example.

Cyber-attacks have increased in recent years – and professional service firms are highly exposed due to the proprietary customer data and intellectual property they process or operate with.  For example, cyber mercenaries are increasingly targeting law firms in order to illegally obtain confidential or protected data that could tip the balance in courtrooms. These so-called ‘hackers-for-hire’ provide technical capabilities and deniability of involvement in the cyber-attack should it be discovered. Claims drivers, which apply across all professions, include phishing and spoofing frauds, third party supply chain risks, ransomware or malware, a lack of adequate systems or controls or data loss. Not only does a cyber breach present immediate first-party costs and disruption, it can also result in significant regulatory exposures, including action from data protection authorities and considerable fines. Litigation from affected data subjects may follow, including large group claims. Breaches may also lead to client and third-party liability claims, with claimants alleging losses due to business interruption or leaked information. A breach also carries the risk of reputational damage, resulting in stock drops and securities claims.  Smaller firms can be more vulnerable as they typically have less sophisticated cyber-security.

Prepare for volatility and unexpected impacts from inflation and new tech

Among the other risk trends examined in the report are geopolitical, economic and market volatility (ranked #3 – moderate impact to operations or loss severity could be expected). The report notes that regulatory exposures can arise for professionals acting for clients who may potentially be caught by a rapidly evolving sanctions regime, while for construction and design professionals, disruptions to supply chains could bring claims relating to project delays.

The inflationary environment also ranks as a #3. If inflationary pressures lead to recessionary conditions, there could be a myriad of potential exposures for professionals, including insolvency-related exposures for auditors and insolvency practitioners, lenders’ claims for solicitors and valuers, and claims arising from due diligence against lawyers and accountants, according to the report. Outside of recessionary conditions, financial services professionals may face mismanagement and suitability allegations relating to funds negatively impacted by high inflation.

At the lower end of the risk rankings scale, but not to be underestimated, is the use of new technologies such as AI tools by professional services firms (ranked #4 minor impact).

“While AI has the potential to operate as a risk reducer, as technological solutions evolve rapidly so do the potential claims drivers,” says Assef. “These include data privacy or copyright issues, the need to preserve confidentiality when using service providers, risks of errors being repeated in volume work, and the level of supervision involved in machine learning tasks.

“Professional firms must continue to properly train and supervise their staff as technology evolves and to ensure the authenticity of work products considering the emergence of tools such as ChatGPT. Ultimately, a lack of awareness of how generative AI works, as well as untrained use, could lead to legal sanctions and civil claims against all types of professionals.”  A New York lawyer recently faced sanctions over a ChatGPT-aided brief used in their client’s personal injury case. The technology cited six non-existent court decisions.

PI claims – most impacted professions

The report also notes that over the past 20+ years AGCS has processed and handled over 90,000 PI claims globally with a total value of €2.2bn. Analysis shows that for large losses (€1mn+ claims only), solicitors/lawyers are most impacted (30%), followed by construction professionals (27%) and insurance brokers/ agents (22%).

Download the full report HERE

Authored by Allianz