How the president's infrastructure plan will affect P&C carriers
The proposed $2 trillion plan could provide critical upgrades to roads, bridges, ports and waterways.
Following a tumultuous year sorting through the fallout from the COVID-19 pandemic and a significant number of natural disasters, property and casualty (P&C) insurers stand to gain a boost from President Joe Biden’s proposed $2 trillion infrastructure plan.
While the scope of the proposal is expected to change as it moves through Congress, its anticipated large investments will be made to modernize the nation’s highways, rebuild bridges, and upgrade ports and airports, along with other critical infrastructure needs. As presented, Biden’s plan includes $157 billion for road, bridge, airport, port, and waterway improvements.
The announcement comes as the American Society of Civil Engineers awarded the U.S. a “C-“ in its recently released 2021 Infrastructure Report Card. The overall score reflects the aging infrastructure and lack of investment in upkeep and modernization. As these infrastructure improvement projects begin to take hold, the construction industry will experience a substantial boom that will trickle down to suppliers, builders, and subcontractors, among others.
Anticipating and managing risk is a crucial part of any construction project — large and small. The challenge for construction firms will be to find affordable, comprehensive insurance during a hard insurance market. P&C insurers need to brace for the increase in demand and find meaningful solutions to ensure these much-needed projects proceed in a safe, timely, cost-effective manner.
Construction boom during a hard market
The hard insurance market reflects the failure of certain lines of coverage to produce a profit to cover the rising cost of losses. For construction companies and related businesses, that translates to an increase in the cost of P&C insurance, combined with stricter terms and conditions and reduced limits on coverage. With higher-than-expected losses due to numerous natural disasters over the past couple of years, along with the impact of COVID-19, P&C rate increases are expected to continue for the near term at least.
One key to obtaining coverage in a hard market is to plan ahead.
Insurance companies are overwhelmed with submissions and are taking longer to assess renewals and new policies. Submissions made just prior to policy expiration or start date may not receive proper consideration. Construction companies can help obtain the best rates and coverage by conducting due diligence on their risk exposures and mitigation tactics. Having a comprehensive risk management strategy that includes cyber, climate change, pandemics, and other emerging risks can go a long way to gaining more favorable terms for future P&C needs. No detail is too small as underwriters are taking a harder look at accounts and being more selective about the business they cover.
Maintaining an accurate and comprehensive loss history is also important. Companies with a favorable loss history are poised to receive more beneficial rates and terms of coverage, while companies with a complicated claims history may pay significantly higher rates, or struggle to obtain coverage at all. Customers should be encouraged to seek assistance from their insurance brokers for risk management services, which are often provided at no additional cost.
The future of P&C
P&C carriers will need to innovate to meet the looming coverage demand. Pricing will be an important competitive differentiator for insurers. Enhanced data and analytics capabilities will help P&C carriers with risk assessment and selection and provide actionable information to assist underwriters with valuation and pricing.
Large-scale infrastructure projects come with higher insurance costs and P&C carriers must continue to help construction companies and related businesses manage risk and plan for the future. There will be a greater need for public-private collaboration going forward, as the market moves to address what is insurable or uninsurable and who pays for what losses.
In light of COVID-19, some states and the federal government are taking a closer look at coverage exclusions and pricing. P&C carriers are best positioned to assess current and future risks, and risk-based pricing provides greater value to customers in this challenging environment.
What’s next?
As P&C carriers continue to deal with the fallout from the COVID-19 pandemic and losses from recent catastrophic events, they mustn’t lose sight of the future. New business opportunities await as President Biden’s infrastructure plan indicates. The increased focus on renewable energy, sustainable construction and carbon footprint minimization, for example, presents an opportunity for insurers to develop new products for those industries.
P&C carriers and brokers are in a position to help construction companies with risk mitigation, identifying potential exposures and providing actionable solutions. Working with a knowledgeable broker, one with expertise in construction and related businesses, is essential for obtaining comprehensive, cost-effective solutions to meet each project’s unique challenges. Experienced carriers and brokers can help businesses protect their bottom line and ensure their coverage meets their businesses’ evolving needs.
Obtaining adequate coverage will take more advanced and thorough preparation. Enhanced data analytics capabilities, along with strong customer focus and risk-based pricing options, will help P&C carriers and brokers, and their clients thrive long-term. And it will ensure much-needed infrastructure improvement projects move forward.
Gene Nosovitch is a commercial insurance consultant for HMK Insurance, an Alera Group company. Contact him at gnosovitch@hmk-ins.com. Mark Englert is the Alera Group executive vice president, property & casualty. Contact him at Mark.Englert@aleragroup.com.
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