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Global construction rate trends

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March 17, 2021

While the overall marketplace remains very difficult with continued upward rate pressure, we are seeing the emergence of different outcomes for clients.

The market for insurance and particularly construction related covers is seeing a divergence as we enter 2021. While the overall marketplace remains very difficult with continued upward rate pressure, we are seeing the emergence of different outcomes for clients. Those with good loss experience and risk profiles are likely to see a more moderate rate and capacity environment as underwriters differentiate accounts again. Those with poor experience or difficult risk profiles will continue to see significant rate movements. While new capacity has entered the market overall it is being targeted by type of construction and territory, so not all insureds will feel the same outcomes globally. A key challenge for the industry is to distinguish how specific markets will respond to different lines of coverage and what their definition of better risks will be.

Perspective on the construction insurance marketplace

How should construction risk managers respond?

Utilize analytical tools to evaluate efficacy of current program structure
Utilize analytical tools to evaluate efficacy of current program structure.
Prepare for continued increases in insurance pricing
Prepare for continued increases in insurance pricing.

Evaluate adequacy of insurance changes embedded within bids and contracts

Consider alternative risk transfer (ART) program structures
Consider alternative risk transfer (ART) program structures.

Begin discussions regarding viability very early, as much as a year prior to renewal, as utilization of ART structures may involve a lengthy educational process for internal stakeholders, owners and insurance partners.

Continue to develop and strengthen relationships with incumbent insurers
Continue to develop and strengthen relationships with incumbent insurers.

Take time to develop new relationships. Off-cycle market meetings with incumbents as well as potential alternative insurers are valuable.

Begin the renewal process a minimum of 180 days prior to program expiration
Begin the renewal process a minimum of 180 days prior to program expiration.
Work in conjunction with your insurance broker to develop comprehensive and accurate renewal data
Work in conjunction with your insurance broker to develop comprehensive and accurate renewal data.
Evaluate project schedules related to project placements
Evaluate project schedules related to project placements.

If a project has been delayed for any reason and will require the extension of any insurance placement, begin this process as early as possible. Project extensions have become challenging to obtain and can be quite costly

North America insights

The market for construction general liability (GL) continues to trend upward. However, while for several years insurers have signalled GL as the “next auto,” drastic rate increases have not always materialized.

Commercial auto remains one of the most challenging lines or insureds, with persistent rate increases and program structure changes. While most construction firms have encountered a flattening of workers compensation rate reductions and premium offsets, the line continues to run well for most insureds and insurers.

The umbrella and excess marketplace for construction remains extremely challenging. The pace of rate increases is accelerating. Contractors are also experiencing significant restrictions in coverage. We expect these conditions to continue well into 2021.

Pushed by increased reinsurance rates and diminishing capacity, controlled insurance programs (CIP) pricing continues to increase. We anticipate rates will continue to escalate in the coming months.

The builders risk market continues to remain challenging, as insurers rebalance their portfolios in pursuit of underwriting profitability after years of global losses and soft market conditions.

The U.S. construction professional indemnity/liability market remains relatively competitive, although insurers are evaluating capacity deployment and retention levels and applying added underwriting scrutiny to certain coverage enhancements.

With construction activities looking to make a rebound from projects delayed and suspended by the COVID-19 pandemic, the utilization of contractor’s pollution liability (CPL) will likely be at an all-time high in 2021. Fortunately, the CPL market (comprised of more than 25 insurers globally) will be ready to meet this demand.

Work delays and uncertainty resulting from the pandemic are likely to impact subcontractor risk and default into 2021. This trend has created increasing interest in subcontractor default insurance (SDI) coverage, resulting in additional insurer capacity entering the market.

Disclaimer

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.

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