The orderly correction of the Lawyers Professional Liability (LPL) market that began in late 2018 continued through 2024.

During this period, LPL insurers exercised great discipline with their capital deployment, pricing, underwriting and risk selection. Many insurers recalibrated their portfolios and some exited the segment altogether. There has been a limited amount of new entrants, resulting in the cost of LPL capacity increasing.

• For law firms under 200 attorneys, the correction resulted in relatively flat pricing since the fourth quarter of 2022, with some firms receiving modest rate reductions. Long term insurers and new entrants have cited the “under 200” space as a focus growth area leading to primary and excess terms being quoted competitively.
  
  
• For firms over 200 attorneys, most LPL insurers appear to share the perception that primary and low excess layer pricing has returned to a level of sustainability. However, insurers still feel that modest price increases are required in primary and low excess layers to account for economic inflation and headcount and revenue growth at firms.
  
  Insurers are mindful that the competitive market dynamics in the two decades before 2018 created an environment where pricing and retentions fell well behind inflationary trends and exposure growth. This view is reflected in Aon’s data which consistently shows average and median rate increases in the mid-single digits range for claims-free firms since the fourth quarter of 2022.
  
  

Market conditions in high excess (above $50 / $100 million) layers are different.

Insurers in these layers are very concerned about a wave of severe claims activity that is threatening insurer profitability. This has been particularly challenging for Bermudan insurers. They almost exclusively participate in high excess layers and do not enjoy the benefits of diversifying their exposure across an entire firm placement in the way that a U.S., UK, or European insurer can.

There are some U.S., UK, and European insurers, however, who had unfortunate market entry timing and therefore do not have enough portfolio balance (primary vs. excess) to sustain some of their high excess layer losses. Insurers in these layers are continuing to seek meaningful (double-digit) rate increases in an attempt to return to profitability and to ensure a stable high excess LPL market.

LPL underwriters appear focused on familiar topics and are expected to remain so in 2025:

• financial hygiene
• inflation
• the potential for a recession
• disruptions in the banking and financial institution industry
• cryptocurrency markets
• geopolitical challenges posed by conflicts in Ukraine, the Middle East and the South China Sea.

The continued threat of systemic cyber-crime also remains a priority focus. Recent cyber related claims activity has renewed insurers’ interest around the degree to which coverage of the risks relating to electronic data (which may be considered a “cyber” exposure by insurers) falls within the scope of professional liability policies.

New focus areas include Generative AI as underwriters work to understand how firms are using the technology and what challenges and opportunities it presents. Additionally, there has been a flurry of mergers and acquisitions and lateral partner movement and underwriters are keen to understand firms’ strategies in that regard. Underwriters are also asking more questions about supervision of lawyers (particularly associates and laterals) due to the perception that this may be more difficult in a hybrid work environment. This concern is heightened by the fact that many of the recent severe claims have been the result of traditional mistakes and/or unsupervised lawyers.

Overall, the Accountants’ Professional Liability (APL) insurance market was relatively stable in 2024. From an insurance risk perspective, attest and fraud continue to be the areas of most concern and focus to APL insurers.

Policy Wording/Coverages

APL insurers continue to offer broad coverage to U.S. national and regional accounting firms.

Retentions

Retentions are moderately increasing in the U.S. APL market, as insurers respond to firm revenue growth and adverse claims activity.

The stated goal from most insurers is for the insured to carry a retention equal to 0.5% - 1.0% of firm revenues. This tends to plateau for the largest firms with captives providing coverage for some within the required retention. Firms with favorable claims experience can benefit from some premium savings with increased retentions.

Capacity

APL market capacity continues to be stable. There have been no insurer exits from the market this year. However, we did see some change in appetite and reduction in capacity from some insurers. We also observed some excess support markets move into the primary support and a few new entrants writing excess only. There were no new entrants writing lead primary layers.

Insurers continue to manage capacity on a single risk with quota share structures and ventilated layers. Global insurers continue to monitor limits deployed on a single risk via various access points (U.S., UK, Bermuda).

Rates/Pricing

Pricing remained relatively stable. Depending on the commercial insurance attachment point, firms with favorable claims experience have seen renewals with flat premiums or rate decreases. Firms with low retentions or less favorable claims experience have seen single digit rate increases.

Excess insurers generally follow the underlying rate change with some exceptions such as when insurers deem that pricing has been inadequate for years.

Claims

The severity of claims in the U.S. APL market continues to increase, inclusive of rising defense costs, especially among top 50 firms.

Recent large settlements involving national and regional firms will likely have a continued impact on market pricing and underwriting.

Final Thoughts and Predictions for 2025

Accounting firms continue to experience challenges in both their attest and non-attest practices. These include rapidly developing technology, the war for talent, increased regulatory scrutiny, privacy issues, the threat of data breaches and the evolving needs of clients.

Private equity interest in the accounting profession deepened and we saw a handful of Top 25 firms secure private equity investments.

Our three crystal ball predictions for 2025 are:

• Third party capital investment in Top 100 firms will continue. We predict that at least 10 additional firms will go this route in 2025.
  
  
• We are expecting more “mergers of equals” within the Top 25.
  
  
• The regulatory landscape for the firms may change with the SEC and PCAOB merging into a single oversight entity.
  
  

The Consultants’ Professional Liability (CPL) insurance market remains relatively stable for large national and global consulting firms headquartered in North America. A few insurers entered the CPL market in 2024, focusing predominately on writing excess CPL insurance and creating additional capacity for firms seeking to increase limits.

Barring any recessionary and/or inflationary flareups in North America in 2025, we foresee that the CPL market will continue to be stable, particularly from a capacity and rate perspective.

National and global consulting firms purchasing out of North America largely continue to buy CPL and cyber insurance on a combined basis. A few firms purchase stand-alone CPL insurance and a separate cyber insurance tower for reasons ranging from concern about the dilution of limits to considerations about the severity of certain types of professional liability exposures.

In 2024, the purchase of several types of consulting services decelerated, both in the U.S. and globally. The resulting slowdown in revenue growth led some firms to conduct selective reductions in their workforce or RIFs. Professional liability and employment practices liability insurers are monitoring this exposure carefully and watching for any claims activity.

We foresee this trend will continue in 2025. Nonetheless, consulting firms are still adamant on retaining talent and ensuring that their compensation and benefits packages are competitive within the industry.

Private equity continues to view national and global consulting firms as attractive investments, particularly firms with long term clients and sticky annual recurring revenue. Insurers are looking at this trend carefully and evaluating whether firms are planning to expand its business offerings to new services lines and/or geographical locations. Expanding too rapidly and without the proper risk management foundation can concern professional liability insurers. Firms owned by private equity or considering financial offers from private equity should think about a holistic review of client acceptance and continuance protocols.

Insurers are also concerned about Artificial Intelligence (AI), which may impact the quality and delivery of traditional consultancy services. The consulting industry is bracing for new legislation seeking to regulate the use of AI. The European Union enacted the Artificial Intelligence Act (AI Act) which came into force on August 1st, 2024, establishing a common regulatory and legal framework for AI within the EU. Other jurisdictions have also started following suit in establishing their own AI legal frameworks. California, for example, recently enacted the “California AI Transparency Act”.

Policy Wording/Coverages

Coverage has been stable in 2024, except for those with adverse loss developments. Firms with large losses may face the introduction of exclusionary language and/or selective sublimits (smaller limits of liability set as a percentage of the overall policy limit of liability), depending on the nature and severity of the claim activity.

Insurers continue to ask questions about compliance with applicable U.S., EU and UN sanctions and exposures in sanctioned countries such as Russia, Belarus and North Korea. Firms should be prepared to discuss their compliance measures during the professional liability underwriting process.

Retentions

Retentions are mostly flat. However, firms with deteriorating loss development may face higher than average retentions. It is part of the insurance renewal cycle for insurers to review the adequacy of retentions in light of any material exposure changes, e.g. headcount and revenue growth, acquisitional activity and/or adverse claim development, etc.

Capacity

National and global consulting firms generally have plenty of capacity available in the U.S. and London/Europe on a primary and excess basis and Bermuda on a high excess basis. Insurers continue to be very diligent about managing deployment of limits on any one risk across their multiple platforms in the U.S., UK and Bermuda.

Rates/Prices

Generally speaking, premium rates in the CPL market have been stable in 2024. Depending on the risk profile of the buyer, primary pricing is flat to +10%. Firms with a clean loss history and moderate revenue growth saw flat to +5% pricing for all insurance layers. Firms with material losses saw wildly variable higher rates, depending on the severity of the claim activity. Excess insurers continue to seek to maintain consistent increased limits factors on placements.

Claims

Severe claims remain a focal point in the CPL market. There have been adverse developments in several large publicly known matters. Insurers are carefully watching certain exposures, such as large software implementation and development projects and public sector work, both in the U.S. and abroad.

2024 continued the favorable trend (or at least, favorable to insureds) of 2023, with rates generally declining in the earlier part of the year and levelling off to stable or a slower rate of decline in Q3.

Insurers have rewarded improved security controls and good claims experience with reductions in rates at the primary level and these reductions have been followed by the excess layers where insurers have also lowered Increased Limit Factors, further reducing premiums. Capacity is plentiful and there is competition for high quality risks in the U.S. and London markets.

Despite the current favorable environment for the placement of insurance, there are warning signs that, once again, the market may be due for a correction.

• Aon’s data shows that ransomware incidents are continuing their steady rise to a new peak, the fifth consecutive year of increases since Aon started tracking this data in 2019.
  
  
• Chainalysis tracked a record $1.1 billion of payments to extortion actors’ cryptocurrency wallets in 2023. 80% of this was in individual payments more than $1,000,000.
  
  
• Publicly available reports indicate that fewer victims are paying ransoms, which indicates that the ransomware operators’ strategy of “big game hunting” is paying off. Chainalysis confirmed that in H1 of 2024 they tracked a ransom payment of $75 million being made.
  
  
• The cost of breaches is being exacerbated by class action settlements with individuals whose personal information has been compromised.
  
  

What does this mean for 2025 and the future?

• At some point, potentially in 2025, the market will correct and premiums will go up again.
  
  
• Professional service firms are increasingly being targeted by sophisticated threat actors who are mainly motivated by data-theft based extortion – continued investment in cyber security is essential.
  
  
• Training is essential – employees are the first line of defense and are being actively targeted.
  
  
• The severity of losses is increasing and regular limit adequacy evaluations are important. How much cyber insurance do you need now and going forward?
  
  

By employing deliberate hazard differentiation in our broking approach, we have been consistently successful in securing below-market rates for professional service firms, ensuring that the total cost of risk across our client portfolio is balanced year-over-year.

Property

Property rates have remained stable, especially for those risks deemed desirable from an occupancy and/or loss profitability perspective, such as professional service firms.

The only exceptions are named storm and high hazard flood exposures where capacity, rates, and deductibles remain closely examined by insurance carriers.

Casualty

Casualty market conditions continued to be relatively stable.

General liability rates have been nearly flat to single-digit rate increases for professional service firms, with consistent coverage terms and conditions, whereas the heavier industries experienced rate increases and more restrictive coverage terms. Auto continues to take regular rate increases. The umbrella market remains the most challenging casualty line, even for well-performing risks.

Crime/Social Engineering

We continue to see social engineering and business email compromise claims.

Carriers have remained focused on limit and retention strategies while pricing has remained competitive primarily due to the profitability of this product line.

Fiduciary

The severity of fiduciary claims is expected to increase, as projected settlements and defense costs are predicted to rise.

While premiums remained stable, carriers continue to monitor developments with excessive fee litigation and other exposures that are impacting profitability.

Outlook

The Property & Casualty insurance market landscape remains somewhat frail. Unpredictable natural catastrophe insured losses and social inflation makes for an uncertain outlook.

Material increases in casualty and/or natural catastrophe losses could impact future insurance market developments.

With inflation subsiding and the talent market showing signs of normalization, many professional service firms entered 2024 with plans to continue tweaking their total rewards packages by cutting back on programs of questionable value and redirecting spending toward the areas with the highest need.

As reported in our survey results in February and June, the areas most commonly targeted for reevaluation were clinical point solutions and back-up care programs. Family forming benefits, lifestyle benefits, and time away allowances were noted as key areas of additional investment.

Law, accounting, and consulting firms also continued to focus on cultivating a culture of wellbeing as both their partners and staff contended with economic and other challenges outside of work. Supporting internal business resource groups, shoring up employee assistance programs, and careful messaging from senior leadership emerged as the primary strategies by which firms offered support.

In the U.S., firms are reviewing and strengthening health and welfare plan governance procedures as plan sponsors are increasingly facing lawsuits over alleged mismanagement. Merger-related due diligence and uncertainty around post-election regulatory priorities were also cited as reasons for a greater focus on compliance.

What is perhaps the greatest human capital challenge faced by professional service firms came into focus in the second quarter, when health plan underwriting for the following year began: a return to rapidly rising healthcare costs.

General inflation, provider consolidation, deferred care, ongoing access to care issues within the UK’s NHS, and promising-but-costly emerging treatments like GLP-1 drugs have all been cited as drivers of double-digit year-over-year cost increases for many firms, following several years of a suppressed trend linked to the coronavirus pandemic.

While minimally disruptive plan management actions recommended by Aon’s Health Solutions consultants can contain costs over the long term, employers have few options to address large sudden cost pressures other than increasing their healthcare budgets or making substantial cuts to benefits or subsidies.

We expect that healthcare costs will remain a challenge heading into 2025 as our Actuarial & Analytics colleagues predict costs to rise by 10% globally, including a 9.0% increase in the U.S., 7.4% in Canada, and 17% in the UK.

Other 2025 challenges and opportunities for firm leaders include keeping benefits and compensation programs attractive and relevant for an increasingly diverse professional service firm workforce, managing employee expectations and fears around the use of AI, and continuing to lead with empathy as employees face an increasingly complicated world.