Major factors impacting the 2022 construction liability, insurance market
Incumbent specialty insurance carriers are at a disadvantage for the first time in years.
After more than two years of a turbulent P&C insurance market, mainly driven by rate increases and carrier-initiated displacement in the excess liability lines, the market has found more level ground. While there continued to be displacement in the first quarter of 2022, this time it came from brokers and insureds pushing to contain costs rather than carriers re-underwriting their books.
Between 2020 and 2022, there were more than 20 new excess casualty market entrants. These carriers — along with all the existing capacity with lofty growth goals — became more aggressive on new business deals.
Incumbent carriers are at a disadvantage for the first time in a number of years, which is positive news for buyers. However, turnaround time is still a challenge, with a big gap between the number of underwriters needed and underwriters available.
Due to the aforementioned factors, pricing outcomes are expected to be more favorable this year compared to previous years for the umbrella and excess liability insurance marketplace. But there is an exception: the construction industry will still have pain points.
There has been an influx in new capacity in construction, with broad guidelines and aggressive rating models for project/wrap and practice business, both from primary and excess standpoints. This influx has intensified competition on low- to medium-hazard accounts, providing more options for buyers.
The following are key factors for agents and brokers to keep in mind for 2022 and beyond.
A lack of skilled construction labor and increased demand
It’s no secret that the labor market in the construction space is showing signs of strengthening. However, it’s estimated that the industry will need to hire about 650,000 more employees just to keep pace with the demand for new construction, according to the Associated Builders and Contractors association. With the passing of the recent Infrastructure Investment and Jobs Act, the construction industry is in dire need of skilled labor as companies work to modernize America’s infrastructure and keep pace with the new housing demand.
While this data may paint a bleak picture, it does offer a great opportunity for individuals looking to enter the space. However, the lack of skilled labor may pose problems for insurers, as construction requires high skill and specialization. If training from the construction companies is subpar, it could lead to claims complications upon completion of these projects.
For brokers and companies alike, it is imperative that training and safety protocols and procedures are well documented, as carriers want to understand the process and training needed to provide the most competitive rates for projects.
Lingering COVID-19 effects on the construction industry
The COVID-19 pandemic has been a defining event for the world, including the construction industry. The industry has dealt with numerous slowdowns for ongoing jobs, which has forced contractors and insurers alike to pivot and get creative in offering extensions to project terms.
Supply-chain issues have further upended budgets and job timelines, as materials are not only being delivered late (and sometimes with no timetable at all), but also at a cost exorbitantly higher than budgeted.
Building material costs are still up, putting a strain on construction budgets and making future jobs more difficult to forecast from a cost and timing standpoint.
Construction industry trends
With increased demand for new commercial and residential construction and upgrades/improvements to current infrastructure, the construction industry is poised to see unprecedented growth. Accompanying this growth are a few key trends outlined below.
- Modular and prefabricated construction — This new type of construction presents clear advantages such as a smaller physical jobsite footprint, waste reduction and a decrease in disruption to the jobsite. Modular construction is expected to reach almost $160 billion by 2023, cited by the National Fire Protection Association Journal. Be prepared to see an increase in contractors entering this space, as well as projects using this new construction process.
- Sustainability; Environmental, Social and Governance (ESG); and green construction technology — Green construction will continue to increase with the global push for environmental sustainability and the decrease of waste and carbon footprints.
- Design-build construction exposure — In design-build construction, a single firm takes on the responsibility of architects, contractors and construction workers. Design-build has become increasingly popular, and the majority of states are now using this method for public construction projects.
For agents and brokers, it’s important to fully understand the technology and process behind these materials to accurately convey information to underwriters.
While the excess and umbrella market is showing signs of rate increases leveling off for low- to medium-hazard accounts, it’s important to be cognizant of the current issues and trends, especially in the construction industry as it is poised to see unprecedented growth.
Partnering with an expert intermediary with a deep understanding of these trends can greatly reduce confusion among insurance buyers, as well as secure the most competitive programs available in the ever-changing marketplace.
Adam Mazan is vice president of the Casualty Practice at Risk Placement Services (RPS). Russ Stein is area executive vice president for RPS National Brokerage. This piece first published on the RPS website and is republished here with permission.
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