Over the past 18 months we have witnessed that things have started to become much tougher when placing insurance covers for all classes of insurance. We have, in previous articles, advised that the construction insurance market was hardening and initially this was focused on projects. However, this is now spreading to annual programmes as well, with insurers looking to tighten-up wordings, reduce limits and impose exclusions, specifically with regard to COVID-19. We are also seeing excess third party liability insurers imposing heat restrictions as well as requiring water management plans.
The market hardening may not be news to everyone
Therefore, the market hardening may not be news to everyone, and by now many will have seen significant increases in their own premium rates. In our opinion the key to obtaining best terms is three-fold – time, information and marketing strategy.
Historically, the renewal process for project insurance would ideally allow for 90 days before a renewal date or a similar lead time, or possibly even shorter. This timeframe is now thought to be insufficient, where the process should now be started earlier.
In previous years when looking to re-market an annual risk there would be plenty of insurers willing to look at new business. Throughout 2020 and so far in 2021 most insurers are more interested in retaining the business they have and there is a very low appetite for new business. In the instance that an insurer is willing to look at new business, they have to review and make a business case internally before they can offer terms and engage with a new client. This may take some time and some insureds may not always be willing to wait for that decision, instead relying on the terms from their incumbents.
Interestingly, as we progress through 2021, we have been hearing from a number of insurers that they are keen to win annual business so we are expecting there to be some competitive tension in the market for renewals.
Within the construction market we arrange covers for both annuals and projects. In both cases higher quality of information is now needed along with a longer timeframe to obtain the terms.
What detail is required, and why?
There have been some considerable losses that insurers have suffered over the past five years that have eventually led to the point where all insurance companies are having to take action. Some losses have been major fires losses. Other significant losses include continuous water damage claims within buildings, floods, slips trips and employers liability claims. This is on top of the larger catastrophes across the world that have an impact on the insurance companies as a whole, for example the Australian wildfires at the start of 2020.
The losses need to be addressed and with that the need for insurers to see greater detail of how this will happen, to allow them to seek greater comfort on these risks being mitigated. Some of the more granular detail now required comprises the below:
The key is to provide a better and clearer understanding of the work to be undertaken.
We have now entered a time in the insurance market that many have not encountered before.
Previously, we would expect insurers to provide answers within seven to ten days following provision of an underwriting submission. Now, we are seeing that this timeframe can easily be doubled in order to just look through the information and wording, before coming back to ask additional questions; further extending that timeframe. We’re finding this to be true of project business as well as annuals.
Previously, we would expect insurers to provide answers within seven to ten days… now that timeframe can easily be doubled
COVID-19, along with the already hardening insurance market has resulted in insurers having to seek many lines of management approval and sign off. This means that underwriters who previously had underwriting authority now have to seek approval at a much lower level than before.
Quotations that insurers provide are now open for a maximum of 30 days, at which time they will reconsider and possibly increase the premium rates as well as reconsider the cover offered.
When placing a policy for a project, the general expectation is that the terms and conditions are agreed to be in place for the duration of a project without amendment. However, the current trend in a situation where a policy period extension is requested is that insurers impose an exclusion around COVID-19. Despite our efforts in challenging this, insurers are insisting that a COVID-19 exclusion be imposed regardless of what is stated in the policy.
In addition, whilst there is still a good level of capacity available to underwrite even the largest of projects, there are fewer lead insurers looking to provide terms; with many looking to see what others offer before offering to support, possibly at enhanced terms.
What does the future hold?
Our prediction is that the construction industry is likely going to see increases in premium rates continuing into 2021 for both project and annual insurances. These increases are likely to happen as insurers and reinsurers look to protect their bottom line and deal with the long tail business that will still hit their books, and will continue to do so for a while yet.
Anything that can be done to provide a clear understanding of what will be carried out, with information of greater detail will contribute to achieving the best terms in this difficult market that continues to harden.
For any further information or guidance around the hardening market please get in contact with the team.
