Research

Marketplace Realities 2018: Construction

November 6, 2017

The one thing

While builders risk capacity is at an all-time high in the U.S., parties to construction contracts need to prepare for higher costs associated with this line of business, given fires and natural catastrophes in 2017.
  • General liability. Capacity remains high but underwriting discipline is firming, leading to relative stability of rates. To support pricing, carriers are tinkering with changes in coverages and deductibles, increasing the need for diligence on renewals.
  • Construction property/builders risk. While the property market continued to be competitive during the first three quarters of 2017, it remains to be seen if the catastrophes of September will cause a general uplift of property rates that will impact the construction property and builders risk market. Up to the time of this writing, domestic insurers had continued to perform well and had grown their net and treaty lines, while new players opened their doors. Wood frame risks stood out as an exception. Due to a costly series of fires at wood frame jobsites in 2017, we’ve experienced a reduction in capacity for these risks, which has caused rates to surge.
  • Price prediction

    General liability
    Flat

    Workers compensation
    Flat


    Automobile liability
    +5% to +20%

    Excess liability
    Flat to 5%

    Builders risk
    Flat (except wood-frame risks)

    Professional liability
    Flat

    Controlled insurance program (CIP)
    Flat to +5%

    Contractors pollution liability
    -10% to flat
  • Workers compensation. Despite trends — aging workforce, higher medical expenses, etc.— that should lead to higher rates, the workers compensation market remains stable.
  • Automobile liability. Worsening trends in 2017 may continue in 2018; poor underwriting performances continue to pressure rates.
  • Excess/umbrella liability. As with GL, an element of stabilization is entering the market. While capacity is ample, experienced underwriters are starting to hold the line on rates, especially in the lower layers. While the cat losses of September 2017 will have direct rate implications for property cover for construction buyers, we do not expect that upward pressure to spread necessarily to other construction lines of business, particularly umbrella/excess.
  • Professional liability. The PL marketplace continues to be very competitive, with a growing carrier presence and the largest U.S. capacity to date. For-sale residential continues to be the most challenging project risk for carriers. Underwriters are reviewing contractor delegated-design, geotechnical and structural firms closely due to recent loss experience.
  • Controlled insurance programs. CIPs are still popular for both general contractors and owners with cap spend budgets. While two-line CIPs continue to be placed, particularly on larger, complex projects, GL-only CIPs have grown in popularity, driven by lower deductibles, which reduce and sometimes eliminate collateral requirements and the completed operations coverage typically tied to each state’s statute of repose.
  • Contractors pollution liability. See the environmental marketplace page.