Skip to main content
Survey Report

Construction Marketplace Realities 2019 – Builder’s Risk

Corporate Risk Consulting|Insurance Consulting and Technology
N/A

March 29, 2019

The builder’s risk market is in transition and starting to firm; this is attributable to poor loss experience and hardening of the fixed/operational property market.

Rate predictions

  Trend Range
Builder’s Risk Rate Forecast: Increase +5 to +10%

Key takeaway

The builder’s risk market is in transition and starting to firm; this is attributable to poor loss experience and hardening of the fixed/operational property market.

The North American builder’s risk market has started to exhibit signs of firming. The recent shift in market conditions can be attributed to poor loss experience, globally, coupled with a fixed/operational property market that is quickly hardening.

In 2017 and 2018, the global builder’s risk marketplace experienced a rash of major insured losses. While the majority of these were the result of natural catastrophe, many stemming from HIM (Harvey, Irma, and Maria), others were the result of fire. We also experienced several large losses relating to paint protection in connection with Liquid Natural Gas (LNG) facilities in Australia.

Loss experience, in concert with the past decade of eroding marketing conditions, has resulted in a reduction of builder’s risk capacity in the London marketplace. Lloyd’s, for example, has seen several syndicates, including Brit, Beazley, Talbot, and CNA Hardy, exit the construction marketplace entirely, equating to a loss of $202.5 million of probable maximum loss (PML) capacity. The reduction in capacity, which is currently estimated at $4.5 billion, has resulted in a surge in rates, as well as a restriction in coverage terms and conditions overall in the London marketplace.

The builder’s risk loss experience, globally, coupled with record losses for the fixed property/operational marketplace in 2017 and 2018 (estimated at $230 billion total), has caused firming that our project owners, developers, contractors, and subcontractors, are just now starting to experience in North America. The shift in market conditions is starting to be seen and felt in a number of different ways: increased underwriting scrutiny, a reduction in carrier appetite for projects with a heavy exposure to natural catastrophe, and/or unique means and methods (e.g. modular construction), an increase in rates, as well as tightening of terms and conditions (e.g. increased scrutiny regarding request for “the defective part” via LEG 3, requirements for higher water damage deductibles, etc.).

It’s critical to understand that the builder’s risk market is very much in a state of transition and is starting to firm. As you prepare for your master builder’s risk renewals, and/or, budget your builder’s risk costs for an upcoming bid, it is imperative to factor in the additional rate/surcharge that will likely be required at the time of binding. It’s also important to start considering alternative program structures, to ensure optimization of risk transfer at acceptable levels of cost.

Now, more than ever, it’s critical to partner with an insurance broker that has successfully navigated through various market cycles and possesses a deep understanding of the shifting builder’s risk marketplace. Our North American Builder’s Risk Broking Team is comprised of dedicated brokers that specialize exclusively in CAR and EAR. Their deep level of expertise, coupled with their strong market relationships, position them to design and deliver comprehensive and competitive programs, regardless of market cycle.

Contact Us