Allianz ranks Top Emerging Liability Trends for Professional Services Firms

Architects and engineers are being scrutinized more closely for construction and fire safety flaws. Financial services professionals may be accused of mismanaging inflation-affected investment funds.

When preparing client cases, an untrained lawyer’s use of artificial intelligence (AI) tools could result in an error-ridden brief. The evolving risk picture for professional services organizations is complex.

new report from professional indemnity (PI) insurer Allianz Global Corporate & Specialty (AGCS) 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, 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, to failure to identify fraudulent activity, to the unintentional breach of contract, intellectual property rights or confidentiality, and 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.

Risk rating by Allianz

Evolving legislation related to building safety and cybercrime, 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 too, the report notes.

In the United Kingdom, prolonged liability periods for building and fire safety problems could result in additional legal claims against manufacturers and suppliers, potentially having a domino effect on all professionals in a construction project, such as architects, engineers, and design and build contractors.

Cyber-attacks have become more common in recent years, and professional services organizations are particularly vulnerable because of the private client data and intellectual property that they process or operate with.

Cyber mercenaries, for example, are increasingly targeting law firms in order to gain private or protected material 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.

Phishing and spoofing scams, third-party supply chain risks, ransomware or malware, a lack of proper systems or controls, or data loss are all claim drivers that apply to all professions.

A cyber breach not only results in immediate first-party expenses and disruption, but it can also result in major regulatory exposures, including action from data protection authorities and large fines. Litigation from harmed data subjects, including massive group claims, may ensue. Client and third-party liability claims may also result from breaches, with claimants alleging losses due to business interruption or disclosed information.

A breach may also cause reputational harm, resulting in stock decreases and securities claims. Smaller businesses may be more exposed because their cyber-security is less advanced.

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 services 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.

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