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Construction industry forecasts are difficult in a “normal year” (remember those?), let alone a year following a global pandemic. Given everything, 2020 was a relatively good year in the construction industry despite increases in the costs of materials. The insurance industry, however, was hit by significant losses from the pandemic, a historically active hurricane season, huge wildfires in 2020, and a deep freeze in Texas to start 2021.
The liability market has also been hit hard. There has been no slowdown in the number of construction defect claims, especially for residential construction. Awards for bodily injury claims, especially as a result of an auto accident, continue to escalate. As a result of the pandemic, carriers have also seen increased claims for both workers compensation and employment practices. Even Cyber Liability underwriters have taken a hard hit with more people working from home and exposing their companies in ways not previously contemplated.
As a result, carriers are now more reluctant to commit capital to the long-tailed construction industry. With less available capacity, the construction market is seeing some significant rate increases and encountering more challenges in securing project-specific coverage for larger residential construction projects. Insurance companies have become more selective in construction and have cut back capacity, while pushing rate. Particularly hard hit are residential contractors that work on the envelope of a building – roofers, windows and doors, exterior painting, drywall, and stucco.
On Controlled Insurance Programs (CIP’s), lead excess layers are being reduced and carriers are less willing to take the conventional $25,000,000 capacity layer participations of year’s past, leading to smaller portions taken by the carriers at higher rates. As the market resets, carriers are also more hesitant to offer long-term pricing and coverage commitments via Rolling-WRAP solutions so common over the past decade. Even smaller practice policies for general contractors and artisans are increasing an average of 15% or more on General Liability and increases on Umbrella and Excess policies have averaged 25 to 50% or more. Contractors with large auto fleets are getting hit the hardest, even with good loss experience. For fleets above 100, many carriers are requesting insureds to purchase $2MM primary auto limits in order to offer a lead $5MM Umbrella. Since auto rates are also continuing a steep incline, many contractors are seeing overall increases of 25% or more. This dynamic may be best exemplified here in the state of Florida, where the litigious climate and loss ratios have driven carriers out and rates sky high, particularly on the lead excess for residential projects.
Achieving the best, most cost-effective coverage will remain challenging. Putting project policies together may be more difficult in this market and will require greater flexibility. Deal structures are likely to be more complex than in recent years when broader terms and higher aggregate limits were readily available. Rates are likely to be higher, terms tighter, and capacity less plentiful. It is critical to start with a realistic idea of the insurance market as you evaluate projects in this challenging climate. Rates have been moving higher and coverage enhancements may not be as readily available.
The key to building a cost-effective program is working with the right insurance agent. A deep knowledge of the construction industry and experience in designing complex insurance is critical to provide a solid foundation for controlled insurance programs. When reviewing your practice policies, it is equally important to work with an agent who has expertise in Risk Transfer, Fleet Safety, and Quality Control programs in order to ensure that your company is presented to underwriters in the best possible light to obtain competitive terms and pricing.