For the construction insurance industry, the honeymoon appears to be over.
After a soft market that lasted three decades, the hard market has arrived. Rates are going up, capacity is shrinking and carriers are pulling back on limits. It is a sharp departure from a market that withstood the economic fallout from 9/11 and the recession of 2008. Thanks to large payouts, medical inflation and nuclear jury verdicts, combined with the economic downturn brought on by the pandemic, the impact is widespread in the construction market.
Not that it was not expected to some extent. The construction market enjoyed a long period of stable activity, with predictable losses and no real surprises. The result: steady rates, ample capacity and easy-to-locate coverage.
Today, the hard market has made it difficult to find or even renew insurance programs. Particularly when looking for umbrella coverage, those in the construction industry will find a less responsive market. Where shopping a portfolio to one or two carriers was the norm, brokers are now finding that it takes working with nearly a dozen carriers before coverage can be placed.
That market trepidation reaches into the primary construction market, as well. As buyers are turned away from umbrella programs, they are seeking coverage in the primary market, which is putting pressure on the overall market in terms of capacity, limits and pricing.
Even for those in the construction industry who can locate coverage, pricing makes it difficult to purchase at the same levels as in prior years. That is forcing some in the market to make tough decisions: whether to go with the same limits or decrease coverage to make it more affordable.
However, the conditions for contractors, subs and the trades have not changed. Inflation is still increasing, and the risks of doing business have increased, as well. As those risks grow, many are looking at their programs and trying to find ways to obtain coverage while keeping the costs down.
Changing Perspective
To do so in this market, contractors, trades and developers need to be thinking long term, and doing so much farther out from renewal. We recommend looking beyond the current renewal period toward a multi-year strategy. Having a five-year plan for insurance, and for your safety and risk management programs, gives you a fresh look at where your organization is and where you may be able to take it.
Develop a more holistic look at your practices. A broader look at your safety practices can pinpoint areas of improvement. Are we doing the best that we can do? What should our next goal be? Where do we want to take our organization? How can we get fresh perspective on our program effectiveness?
We work with clients to help them build insurance into their long-term business planning. With a comprehensive plan that encompasses safety and risk mitigation with insurance, your business can find fresh ways to tackle risk while reducing your exposures and making your business more appealing to carriers.
That kind of planning bodes well in a hard market. So too does shopping early: We recommend starting the renewal process early — months before renewal instead of 30 – 60 days before.
Improving The Status Quo
That strategy can help your organization obtain adequate coverage with favorable terms. In a market that looks nothing like it did 16 months ago, that is a critical change in strategy that will make your portfolio more attractive while reducing your loss exposures.
Today’s construction insurance market does not lend itself well to last-minute renewal shopping or lackluster efforts to put together an appealing portfolio. Starting early with a broker that understands both the construction industry and the insurance marketplace conditions can bring clarity to your safety and risk management efforts and can help you present an appealing portfolio to carriers now and for the longer term.