Responding to New York building risks in firming P&C market
It is likely that challenging conditions in the P&C market will continue throughout 2020 and 2021.
The casualty market firming for U.S. construction risks, which began in the third quarter of 2019 and continued into 2020, has intensified in the second half of this year and is likely to extend into 2021.
Related: The construction insurance market faces rising uncertainty
These market conditions have resulted in rate increases, capacity shrinkage and higher attachment points. Poor loss history and social inflation are driving the hardening excess/umbrella market for construction risks, with the most significant impact being felt by residential, utility and street-road contractors, and those with auto exposures.
And while this market firming is felt nationwide, the New York construction market is particularly challenging. Capacity is tight, rates are high, deductibles and retention levels are even higher, and few — if any — standard insurers are still writing this class of business.
The New York Labor Law (Scaffolding Law) imposes absolute liability on the employer as well as the owner and general contractor. This allows construction workers to sue for negligence, for example, if an injury results from a fall or from a falling object striking them. Many of these claims take years to settle. They can rack up significant legal defense costs for insurers and drive up reserves before a settlement is reached.
The New York excess market has a small pool of carriers offering limited capacity for contractors doing any type of exterior work or any work involving height, such as masonry or window installation.
Some carriers are providing attachment points on the excess at $5 million, while others may put up only $2 million or even as little as $1 million.
General contractors that subcontract 100% of the work with strong contracts in place that transfer liability to their contractors may find it easier to get the desired excess limits, versus a trade contractor with all direct labor.
Relationships matter
Across the country, remote work triggered by the pandemic and the greater influx of submissions have resulted in many underwriters taking on multiple roles. Greater underwriting scrutiny has also required additional management oversight, lengthening the underwriting process. Strong relationships can deliver a significant advantage.
“Open communication and transparency are key right now,” says Bill Wilkinson, president of the National Casualty Brokerage at RPS. “This involves educating clients about the state of the market and setting realistic expectations.”
New York carriers are no different. They are also relying on the strength of the relationship between the wholesaler, retailer and insured to secure accurate submission information so that they can price the account according to its exposure.
The amount of information underwriters are requiring in the New York market is extensive.
To obtain quick turnaround times and the limits and terms clients require, it is critical to submit a complete application and supplemental; the work in progress/work in hand; loss runs; workers’ comp loss runs; and executed contractors with subcontractors to ensure proper risk-transfer wording.
In New York and throughout the United States, it’s important to start the renewal process early, supported by a complete submission, according to Sarah M. Wirtz, area senior vice president, casualty manager and national Environmental Practice leader at RPS. “This allows brokers to begin talks with the incumbent and new markets to assess their position on capacity, pricing, coverage terms and exclusions that can potentially impact an insured’s insurance program,” she said.
Looking down the road
It is likely that challenging conditions in the casualty market will continue throughout 2020 and 2021. The impact of nuclear verdicts, changing liability exposure and rising claim frequency will persist while the impacts of the pandemic continue to exacerbate the situation.
With carriers also experiencing financial stress from their investment performance, they will likely impose stricter underwriting requirements for optimal risk selection and further adjust their rates to improve profitability. This will likely push more accounts into the E&S market, where insurers have greater flexibility in adjusting coverage terms and conditions.
To properly navigate the casualty E&S market and deliver the best coverage options for clients, retail brokers are encouraged to partner with a wholesale broker with a solid track record and longstanding relationships with seasoned underwriters.
Experienced wholesale brokers know how to negotiate with underwriters to restructure placements to make them more affordable. They also have a deep understanding of how to best assemble a program to obtain desired coverage limits.
Antoinette Sacchi (Antoinette_sacchi@rpsins.com) is an area vice president in the Brokerage at Risk Placement Services. She specializes in general liability and commercial excess for the New York construction industry.
Keep reading…