Challenging times in the construction insurance market

For many years, businesses in the construction industry enjoyed the benefits of a soft insurance environment, due in large part to an oversupply of insurer capacity. Insurer’s investment returns in the construction segment were extremely profitable, which in turn raised levels of competition in the marketplace.

However, during 2019, conditions began to shift. Rising claims activity, including several major high-profile incidents that hit insurers in both 2018 and 2019, led to a deterioration in insurers’ profitability.

What’s the impact?

What followed was an unprecedented number of insurers withdrawing from the construction market. Earlier this year, Marsh – one of the world’s largest global insurance broking firms – reported that as many as 15 leading global insurers exited the market over the preceding 12 – 18 months, resulting in a loss of $US1 billion ($1.27 billion) in market capacity.

What’s to come?

For those insurers that remain, underwriting profitability has become key. Insurers are adopting various corrective measures in an effort to improve the performance and profitability of their construction portfolio. For instance, insurers have generally been applying across the board premium increases, regardless of the client’s business activities, geographical exposures, or individual claims performance.

Global insurance broker Willis Towers Watson (WTW) – a prominent figure in the Construction insurance space – recently reported average premium increases of 15-25% for Annual Contract Works policies and 30 - 60% for Construction Liability.

Conditions in the Professional Indemnity (PI) construction segment are perhaps the most difficult, with WTW reporting even higher premium increases ranging from 50 - 100% on Primary Design & Construct Professional Indemnity insurance placements.

Various brokers are also reporting that insurers are being far more selective with the levels of capacity that they are willing to deploy on certain risks and are quoting on less favourable policy conditions to both new and prospective clients.  A variety of coverages that were once readily available are now either no longer available or have been reduced through the application of narrower policy language. Lower policy sub-limits, new and/or more restrictive policy exclusions, and higher deductible levels are all common (and often mandatory) requirements of insurers in the current environment.

Further reports suggest that some organisations have been unable to secure the desired or necessary levels of coverage needed to meet their contractual obligations or were simply unable to afford the significant premium demands of insurers.

According to WTW, renewable non-conforming cladding and structural defects are two of the larger risk concerns for insurers, particularly for organisations trading in the high-rise residential sector. Renewable energy and waste to energy are also particularly challenging areas with many insurers not willing to provide cover.  New and changing reforms around mandatory insurance for those in the construction industry may also affect the market even further.

The market outlook

Unfortunately for construction businesses, the market outlook moving forward remains bleak. A number of leading brokers anticipate that the increasingly difficult conditions in the construction insurance market are set to continue for the foreseeable future.

“This trend is set to continue through the second half of 2021”, Marsh stated, “with no respite in sight, particularly from a pricing perspective”.

It is critical that construction businesses work closely with their appointed insurance broker to devise well thought out ‘go-to-market strategies that help to minimise the overall implications of the distressed marketplace.  For this to happen, early insurer engagement will be key. Insurers are scrutinising construction-based risks more than ever, and they are demanding higher levels of quality information when evaluating both new and prospective clients.

Critical to all of this is the performance of your insurance broker. As your exclusive representative in the marketplace, their ability to properly leverage your interests with insurers is now more important than ever.

Help is a hand, our specialist services are designed to ensure that you are partnered with the most suitably qualified insurance broker – one that has the experience, resources, and expertise necessary to deliver you the most appropriate, cost-effective insurance solutions in the present market. To talk to one of our team to learn more.