What could possibly go wrong? Or “I’ve made a huge mistake”

Congratulations! It’s been another stellar year for your firm. Your stock price has increased 20%. You’ve added yet another 12 consecutive months of double-digit profits. Your people are celebrating the Holidays with bigger-than-ever raises and eye-popping, boat-buying bonuses. Despite spending the year complaining to anyone who would listen that it’s “impossible to find good people,” you’ve added a bunch of…good people. You’re heading into calendar year 2022 with an amazingly strong backlog. These are heady days indeed.

What could possibly go wrong?

Well, plenty according to the smart folks in the Construction and Design practice at global insurance broker Lockton. Director of Practice Risk Management Karen Erger and her team of professional worriers spend their time imagining what could possibly go wrong for design and environmental firms and then coming up with ways to protect them.

Here are some of the trends and risks that they see ahead in 2022 for you to factor into your planning and decision-making:

Scarcity-driven changes: The continued shortage of both skilled labor and building materials will force the industry to move further towards stricter pre-project planning, the use of technology to increase worker safety, enhanced pre-construction (including but not limited to modular construction), and the greater use of alternative building methods and supplies.

Mega-headaches for infrastructure designers? Passing of the Infrastructure Investment and Jobs Act will lead to more much-needed “megaprojects,” which frequently involve difficult or uninsurable contract terms for lead designers. Traditionally, project-specific professional liability (PSPL) insurance has been a means of protecting balance sheets from megaproject claims. In the current environment, however, insurer capacity is challenged or limited, and PSPL may not be available or commercially feasible.

Supply chain issues do more than delay your grill delivery: Will A/E firms start to see claims from supply chain issues? Example: Designer specs a specific steel pipe. Contractor can’t secure said pipe due to supply chain issues BUT could secure what may be described as a materially similar product that is readily available. Claim alleges the project delay could have been avoided if the designer provided alternatives.

Don’t click that link! Cyber extortion coverage is unavailable for purchase or dramatically restricted. Design firms will continue to feel the pressure to increase cyber security budgets and increase resiliency. In other words, take a large chunk of the money you’ve been saving from minimized internal travel expenses and spend it on shoring up your cyber defense.

Just when you were getting comfortable working from home: Now that many design teams work remotely some or all of the time, managers who formerly relied on “management by walking around” (an excellent way to get your daily steps in) to identify risks will have to develop alternative methods. Example: Will professional liability claims be reported late (potentially resulting in coverage loss) because remote team members don’t understand (1) what constitutes a reportable claim under the policy and/or (2) the consequences of late reporting under a claims-made and reported policy?

Wait, it’s going to cost me more to be “safe”? As project cost and project risk continue to grow, inflation also puts pressure on claim and litigation costs. Insurance carriers are very focused on their exposure to inflation. Designers will need to find the proper balance of risk retention and risk transfer in their insurance programs. Firms with strong balance sheets and superior claims records may find opportunities to leverage their balance sheets to most efficiently manage their total cost of risk.

Everybody loves Raymond but hates contingencies: Reductions in capacity, scope of cover, and markets interested in supporting PSPL insurance for large design/build programs are likely to drive up the cost of claims, pricing, and retentions for both prime and subconsultant design firms. Where capacity is not available for a project-specific program, a contingency can be an option, but it’s not a perfect solution as there is no mechanism to ensure that it be used to respond to claims of negligent design. Accordingly, it cannot serve as a true buffer to the corporate insurance program in the way that PSPL insurance historically has done.

What’s in an acronym? There’s a big difference between OPPI/CPPI and PSPL: Design professionals should be aware that some of their clients may be purchasing modified OPPI/CPPI policies in lieu of traditional PSPL insurance policies. The modified OPPI/CPPI policy does not afford coverage to the design professional, primarily due to the “insured vs. insured” clause within the policy. The First Named Insured on the policy is the client, so their claims against the design professional would not be covered. Design professionals need to keep in mind that OPPI/CPPI isn’t a substitute for PSPL.

This article originally appeared on Morrissey Goodale’s website. Morrissey Goodale is a CFE Media content partner.

Original content can be found at www.morrisseygoodale.com.

Do you have experience and expertise with the topics mentioned in this content? You should consider contributing to our WTWH Media editorial team and getting the recognition you and your company deserve. Click here to start this process.