Research

Insurance Marketplace Realities 2019 — Construction

November 6, 2018

Rate predictions

  Trend Range
General liability No change or slightly up Flat to +3%
Workers compensation No change or slightly up/down –2% to +2%
Auto liability Increase +5% to +20%
Umbrella/excess liability No change or slightly up/down –3% to +3%
Builders risk Neutral Flat
Professional liability Decrease –5% to -10%
Project specific/controlled insurance programs No change or slightly up –5% to flat

Key takeaways

Auto rates continue to harden, and tightening labor markets may negatively impact workers compensation experience. Also, the use of new technologies in the construction industry is creating coverage challenges.

While M&A activity among insurers has yet to have a significant impact on buyers, a growing M&A wave among contractors and subcontractors is leaving fewer insurance buyers, edging up competition in the marketplace.

General liability (GL)

Carriers are beginning to push for slight increases in GL rates.

  • Construction companies are diversifying operations and implementing cost-saving technologies (construction laser guides, laser measurers, wearable jobsite technology, etc.). Implementation of new technologies and processes are causing markets to closely evaluate new potential risks, creating upward pressure on GL rates. As more companies diversify operations, taking on new/different jobs and expanding territories, risk profiles broaden.
  • Increased use of newer technologies in the construction industry is blurring the line between general liability and professional liability.

Despite the increased liability exposure created by new technologies, markets may still be willing to reduce GL rates to offset auto increases in an effort to retain business.

  • Many are concerned that such pricing moves may leave GL underfunded, putting greater pressure on general liability rates in the future.

Workers compensation

Workers compensation pricing remains stable mainly because insurers are taking greater control in managing risks, including use of managed care, fee schedules and telehealth.

  • Despite plentiful challenges related to aging workers, increased opioid usage and higher medical costs, industry innovations addressing these issues have kept a lid on rates and should continue to do so through 2019.
  • Telehealth facilitates greater interaction with injured workers.
  • Managed care/directed care ensures in-network medical providers are used and return-to-work plans are followed.
  • The industry is benefitting from greater legislative support for medical procedure and pharmacy fee schedules.

Opioid overuse is being addressed through drug formularies.

  • Texas and Ohio have led the way in curbing opioid overuse and pharmacy costs with prescription drug formularies. Other states are following suit.

Marijuana use presents challenges.

  • As more states legalize marijuana use, complicated claim scenarios arise.
  • Increased use will impact the viability of drug screening programs.
  • Reimbursement for medical marijuana varies greatly state by state.

Auto liability

Deteriorating underwriting results continue to put significant upward pressure on auto rates. Insureds with historically adverse auto loss experience are likely to receive significant rate increases.

  • Fleet size (vehicle count) have become a significant component of underwriting evaluation, attachment point and pricing.
  • Insurance buyers with moderate to large schedules (in excess of 500 units) may be forced to increase primary limits to a minimum $2 million combined single limit (CSL) or obtain an auto buffer layer to enable them to obtain excess coverage.
  • Vehicle usage data (miles driven, location, etc.) is becoming required submission information.
  • Data on vehicles “laid up” (not used for significant periods of time) or used only within the boundaries of a large construction project (limited public road use) can mitigate concern over fleet risk.
  • Buyers must be proactive regarding fleet safety. Those with robust driver safety programs are generally able to obtain more competitive pricing.
  • Poor experience in other casualty lines (GL and/or workers compensation) may exacerbate overall program pricing increases as carriers are unable to offset auto pricing increases.
  • Few carriers are willing to write mono-line auto liability, leaving a limited marketplace.

Umbrella/excess liability

Umbrella/excess liability remains stable, with continued entrants into the marketplace offering substantial limits and competing for business.

  • The global landscape of markets continues to grow.
  • While auto liability deterioration has continued to strain lead umbrella markets, competition remains ample, though this segment of the marketplace should be closely monitored.
  • The mega cat losses of 2017 did not materially impact the umbrella/excess casualty marketplace as some feared last year. The current hurricane season seems unlikely to bring a repeat of 2017.

Primary marketplace consolidation has led to coverage expansion, putting pressure on umbrella/excess carriers to follow suit.

  • Global competition continues to result in broadened underlying terms and conditions. In response, excess underwriters are doing a more thorough and substantive review of underlying coverage enhancements. Buyers should be careful to ensure proper follow-form coverage.

Auto liability challenges continue.

  • Increases in auto accidents and payouts are driving negative results for primary carriers.
  • Umbrella carriers are looking for higher attachments and rate increases when there are significant auto exposures.

Builders risk

While the construction property and builders risk market continues to be competitive, with ample amounts of domestic and international capacity to fuel competitive terms and conditions, rising loss ratios globally may ultimately have a market impact heading into 2019.

  • The 2017 natural catastrophe events did not have the impact on terms and conditions most thought they would.
  • U.S. market terms and conditions continue to be soft, with an abundance of capacity still available.
  • Newer construction property markets are pushing for market share, which further drives competition.

Wood frame business continues to be a challenging sector.

  • The wood frame arena has seen numerous large losses due to fire, as well as an increase in the frequency and severity of water damage claims.
  • Some carriers have exited this space entirely or scaled back their capacity offerings.
  • More stringent security requirements are becoming prevalent on wood frame construction sites (i.e., third-party monitoring).

Professional liability

The U.S. construction insurance market for contracting-related professional liability exposures continues to expand on both a practice- and project-specific basis.

  • Several new market entrants and increasing competition between existing carriers for renewable professional liability premium have softened the market for those buyers without adverse loss experience.
  • Insureds are seeing a mix of lower premiums, higher program limits, additional sublimits and favorable policy terms at renewal — again, absent adverse loss experience or shifts in business practice mix.
  • Additionally, there is increased competition to write project placements that do not contain primary design exposure for both contractors and owners, as carriers look to broaden their client base. (Architects and engineers will need separate coverage.)

The market, however, continues to stay firm for project-specific placements with primary design exposure (project A&E or design/build project policies with all parties named as insureds).

  • Only a handful of carriers are entertaining this business, depending on the project type.
  • Pricing continues to be high and varies significantly between markets, partially due to demand being driven by mega projects.
  • Few exceptions are being made regarding terms and interparty/related party claims, making large design/build projects particularly difficult when trying to insulate JV partners from risk.

Project specific/controlled insurance programs

As interest in project-specific or controlled insurance program (CIP) insurance continues to grow, increased capacity in the insurance marketplace appears to be meeting the need, so we predict pricing and terms will remain competitive in 2019.

  • Increased market capacity, in some cases from non-standard markets, is triggering competitive rates on project casualty insurance, both jurisdictionally and by class of business.
  • Dual-line CIPs continue, but general liability-only programs are still more prevalent — driven by low retention and limited to no collateral.
  • New York’s Labor Law remains a challenge for CIP market carriers due to subcontractor claim activity.