The State of the Construction Insurance Market

The State of the Construction Insurance Market - Hero Image

While the overall insurance market remains hard, price increases have begun to moderate in the first and second quarters of this year in the construction sector as compared to previous quarters. In certain locations as well as for specific construction types and perils, however, we are still seeing carriers reduce their capacity, restrict their appetite, or exit the class of business, region, or product line altogether.

For example, very few carriers are writing Florida residential construction in the wake of the Surfside condo collapse. In addition, Property insurance for large frame construction remains a difficult risk, as significant losses have put upward pressure on rates and deductibles and have brought on less favorable terms and conditions. Carriers continue to exit the market or reduce capacity.

Non-frame projects, however, are getting the capacity, broad terms, and conditions they need at competitive rates.

Impact of Inflation on Builder’s Risk

The insurance industry also is keeping its eye on inflation and its impact on the construction industry. The cost of materials and labor, which went up substantially as a result of supply-chain disruptions and a shortage of workers during the pandemic, has been further exacerbated by today’s high inflation rate. This impacts not only property values and the risk of being underinsured, but also the cost of Builder’s Risk claims in the event of a loss. Brokers should be talking to their clients about maintaining proper insurance-to-value in their policy limits so that, if a claim occurs, the policy adequately reflects replacement costs.

In addition, policy term extensions for Builder’s Risk projects continue to remain a challenge due to material delays and labor shortages. Rate surcharges and higher deductibles are typically required to extend the policy term.

Inland Marine: Construction Equipment

The Construction Equipment insurance market remains under pressure due to ongoing losses from theft, vandalism, and severe weather events. Insurance carriers are providing market capacity and low-digit rate increases for contractors with good risk profiles. Contractors with larger losses, however, can expect higher rate increases and may use higher deductibles to help mitigate these increases.

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General Liability & Umbrella Insurance

On the Casualty side, pricing increases for General Liability insurance in the construction industry have moderated. The first quarter of 2022 saw low single-digit increases for the majority of construction risks. The Umbrella/Excess Liability market, however, continues to be a challenge for contractors, although price increases are not at the level they were in 2021. New entrants have entered the market, bringing in additional capacity. This should bring more stability to support larger Excess towers.