It has been said that, "When America sneezes, the whole world catches a cold." In similar fashion, the $1.4 trillion U.S. construction industry has an immense impact on our nation's GDP. A cough or sniffle in construction can ripple through the economy, affecting many other sectors — including the builders risk insurance market. In recent months, residential construction has slowed from the hectic pace we saw throughout 2021. The National Association of Home Builders/Wells Fargo Market Index dropped below 50 in August 2022 for the first time since the spring of 2020. The NAHB says, "Ongoing growth in construction costs and high mortgage rates continue to weaken market sentiment for single-family home builders." Yet, in certain parts of the country, sales remain strong. Commercial construction, which usually lags behind residential, continues to grow as businesses move into newly built communities. Inventory is rebounding from historically low levels, and median home prices are coming down. Builders now have more time to finish projects and catch their collective breath. What does all this mean for insurance agent who sell construction and builders risk insurance? The slideshow above illustrates five tip to help insurance agents navigate the current construction insurance market. |

Builders risk considerations

Inflation affects builders risk premiums, too. The more it costs to build a home or commercial project, the more it costs to insure it. Almost every carrier is seeing increases in risk premium per exposure solely based on the fact that the prices of building materials have gone up so much. Higher building costs in turn squeeze carrier capacity. A carrier that was able to insure three of your client's buildings last year may only be able to take on two this year. So while values are high, and you rate off those values, it's costing carriers more capital to insure those risks. As a result, carriers are getting more selective, and we're seeing a hardening in the market. Increasing valuations on permanent structures will have a cascading effect on other lines of insurance, particularly property insurance. Most buildings are probably undervalued compared to today's replacement costs. It's something agents and carriers should evaluate at renewal time. Despite a slowdown in the single-family housing market, I'm optimistic about the future. This is not the same as '06 and '07. With home prices moderating, inventory rising and mortgage underwriting tighter than during the last cycle, experts don't foresee a severe correction ahead. Contractors will weather this period just fine. Agents who can navigate the current market and meet their clients' changing needs will do well, too. |

Infrastructure: A bright spot for construction

Home building may have fallen off from its recent highs, but nonresidential construction is about to get a boost. Federal funds from the American Rescue Plan Act and the Infrastructure Investment and Jobs Act are just beginning to flow to the states to pay for billions of dollars in infrastructure improvements. |

• The American Rescue Plan earmarks $360 billion for roads, modernization of cybersecurity, health services, environmental remediation, school or education services, and police, fire and public safety services.
• The Infrastructure Investment and Jobs Act provides $550 billion over five years for a range of projects, including: roads and bridges, electric grid upgrades, public transport, freight and passenger rail, broadband, clean water infrastructure, airports and ports, electric vehicles, environmental cleanup and transportation safety.

As A.M. Best notes, these funds "will bring a significant increase in public-sector spending to supplement the growing annual expenditures on private construction projects, boosting overall construction spending." In other words, it's a good time to talk to commercial contractors about their builders risk needs. Alan Ferguson ([email protected]) is president of US Assure, where he leads corporate strategy and the day-to-day operational decisions for the company. US Assure exclusively distributes, underwrites and services Zurich's builders risk insurance program across the U.S. See also: |

• The insurance impact of rising construction costs in 2022
• Major factors impacting the 2022 construction liability, insurance market
• How to navigate the 2021 construction insurance market