Underlying Cause of A/E Claims – Business Practices
In today’s increasingly complex and litigious environment, architecture and engineering (A/E) firms are under constant pressure to deliver high-quality projects while protecting profitability. Conventional thinking often places contracts and insurance at the center of risk management. While these tools are essential, they represent only a portion of the solution.
In-depth analysis of claims tells a more compelling story: approximately 75% of professional liability claims are driven not by technical design errors, but by operational business practices. This distinction is critical. It shifts the focus of risk management from reactive protection to proactive operational excellence.
Underlying Cause
SmartRisk's background working with design and construction firms allows for an analysis identifying underlying causes of claims. This is very different than standard carrier analysis using actuarial data identifying; discipline, project type, claimant, region, and services.
SmartRisk approach reveals that the majority of claims stem from non-technical causes. Major contributors;
- Communication and documentation failures
- Project team and staffing issues
- Contract and project administrative weaknesses
- Poor project and client selection
These are not design flaws—they are operational process failures that lead to negligent claims. More importantly, they are preventable.
Contracts and Insurance
Contracts and insurance remain foundational components of any A/E’s risk management program. A well-drafted contract defines scope, allocates risk, and establishes expectations. Insurance provides financial protection when things go wrong.
However, relying solely on these tools is analogous to treating symptoms rather than addressing root causes. Firms often adopt a mindset of “we have contracts and insurance, so we’re covered.” In reality, this approach leaves significant exposure unaddressed.
There are two times when parties look closely at the contract;
- At the beginning of a project when negotiating terms
- When there is a problem identifying who can be held legally responsible
Claims do not originate in the contract—they originate in how firms operate.
Enterprise-Wide Solution
High-performing firms recognize that effective risk management must extend across the entire organization. An enterprise-wide risk management (ERM) approach integrates risk awareness into daily operations, strategic planning, and decision-making.
This includes:
- Rigorous project and client selection (“go/no-go” decisions)
- Strong internal and external communication and documentation protocols
- Investment in staff training beyond technical skills
- Effective project management and staffing alignment
- Consistent QA/QC processes throughout the organization
- Continuous evaluation and improvement
Firms that adopt this holistic approach are not only reducing risk—they improve performance and profitablity.
Proven Across Industries
This is not a concept unique to the A/E industry. Leading global consulting firms such as Price Waterhouse Coopers (PwC) and Accenture have consistently found that organizations with mature, enterprise-wide risk management programs outperform their peers. Research shows;
- Companies prioritizing risk management achieve higher growth and profit margins
- Majority report increased profitability
- Outperform competitors by 10% or more
These findings reinforce a powerful conclusion: risk management, when implemented strategically, becomes a competitive advantage—not just a defensive measure.
Proactive not Reactive
The most successful firms move away from a reactive mindset—addressing issues only after claims arise—and instead embrace a proactive, forward-looking approach. They analyze patterns, identify root causes, and implement firm-wide solutions.
This shift requires leadership commitment. In most firms, risk management responsibility resides at the executive level, underscoring its importance as a core business function—not a side activity.
Bottom Line
Risk management is not just about avoiding claims—it is about improving how a firm operates. When business practices are aligned, communication is clear, teams are properly staffed, and projects are carefully selected, the result is fewer disputes, stronger client relationships, and improved financial performance.
The clear takeaway - if 75% of claims are driven by operational business practices, then 75% of risk reduction lies within a firm’s control. Firms that recognize this, act on it will not only reduce risk, but position themselves for sustained growth, profitability, and long-term success.
