Research

Insurance Marketplace Realities: Construction

2018 Spring Update on Commercial Insurance in North America

April 12, 2018

Price prediction

  Trend Range
Contractors professional: No change or slightly down –5% to flat
Builders risk: No change or slightly up Flat to +5%
General liability: No change or up Flat to +10%
Workers compensation: No change or slightly up Flat to +5%
Auto liability: Up +5% to +15%
Lead umbrella: No change or up Flat to +10% (subject to automobile liability attachment point)
Excess umbrella: No change or slightly down –5% to flat

Key takeaway

In many cases, buyers can take advantage of marketplace conditions to improve terms and raise limits.

Most construction lines are seeing soft conditions, though casualty lines are stiffening.

Controlled insurance programs (CIPs)

The marketplace remains competitive in most lines. Growth expectations around mixed use, habitational, manufacturing and petrochemical are bringing capacity into the project space.

  • Primary general liability (GL) pricing is reasonable in most jurisdictions outside New York, especially for non-habitational risk. GL-only, low-retention CIP programs are available as an alternative to high-retention, loss-sensitive CIP programs that may require collateral.
  • Regarding primary GL for habitational construction, CIPs are primarily placed in the excess and surplus lines (E&S) marketplace, as the admitted carriers are looking to limit their aggregate exposure to most forms of habitational risk.
  • New York remains a unique jurisdiction for construction risks, primarily due to New York Labor Law section 240/241. For the most part, projects in the New York City metropolitan area are underwritten on a project-specific, non-CIP basis.
  • Excess pricing for CIPs remains competitive, especially above the lead $25 million layer.

Contractors professional

Rates for a contractor’s annual practice renewals are flat to –5% or better, assuming good loss experience. Many contractors have taken advantage of market conditions and increased limits with favorable terms.

  • Late notice continues to be the leading cause for denial of claims.
  • Residential projects continue to be the loss driver for professional liability insurers. This has created a small group of carriers willing to offer project-specific products to contractors, design professionals and owners.
  • Claims associated with civil engineering are emerging as a significant concern of professional liability insurers.
  • In general, professional claims are on the rise due to the litigious environment in the U.S. and the adoption of the product by many more construction firms and owners over the last 15 years.
  • Project-specific policies can now offer 10-year extended reporting periods post-substantial completion of a project.

Builders risk

With the exception of wood-frame construction, the North American builder’s risk market remains soft due to an abundance of capacity. This surfeit is due to domestic carriers continuing to increase their net and treaty capacities, as well as new and formidable international players starting to play domestically.

  • Outside of fire and natural catastrophe, water damage continues to be a leading cause of loss. While the overall market remains competitive, we are starting to experience some firming in water damage deductible requirements.
  • In lockstep with continued downward pressure on pricing, carriers are being driven to provide broader coverage.
  • Several new policy forms now automatically include sub-limited coverage offerings for fungus, contract penalty, crane re-erection expenses, reward coverage, cyber risk, and pollutant cleanup and removal.

Due to a rash of very large fire losses in 2016 and 2017, the wood-frame segment of the market has hardened significantly.

  • As rates continue to climb, it’s possible we may see carriers that have traditionally shied away from wood-frame construction reenter the space.
  • Jobsite security requirements from the carriers, including security systems, are becoming much more prevalent.

Construction casualty (general liability, workers’ compensation, auto liability and umbrella/excess)

Upward rate pressure is mounting, and while the marketplace remains competitive, the days of pure soft market pricing and abundant coverage grants appear to be coming to an end.

  • Insurers are thoroughly underwriting risks, requiring significantly more underwriting data.
  • While clients with good workers’ compensation experience are often able to obtain minor rate decreases, this can be offset by increases in auto liability and somewhat stiffening rates in GL. While excess capacity remains abundant, premiums for lead umbrellas have begun to rise, and carriers are often looking to attach at higher limits.
  • Insureds should be proactive in addressing their auto exposure. Driver’s training and fleet safety programs are becoming critical in differentiating risks.
  • Some coverage grants are becoming more difficult to obtain.
  • Carriers are less willing to negotiate rate decreases in response to increases in exposures, another indication that the marketplace may be stiffening.
  • Contractors with exposures subject to New York Labor Law are experiencing rate increases.