Construction & Infrastructure

Emerging Issues

Issues by Stakeholder Type

Projects (Owners and Contractors)

  • Project delays continue to be among the largest of obstacles contractors face as a result of COVID-driven backlogs, labor shortages, and supply chain constraints.

  • As projects continue to get larger and more complex, project participants (owners, contractors, engineers, etc.) are realizing that they need seasoned senior business executives to lead their projects given the significant financial consequences that may arise from over-budget and/or delayed projects. The talent shortage is having an impact on project schedules.

  • Jurisdictions around the world are increasingly examining using alternative contracting models to procure infrastructure in recognition of the fact that historical adversarial contracting models are leading to lengthy and expensive claims and delays.

Contractors (Annual Practice Programs)

  • The infusion of technology into construction is accelerating, with significant implications for construction productivity, safety and risk.
  • Higher materials prices and labor shortages, coupled with supply chain disruption, is making it difficult for contractors to bid fixed price contracts.
  • It is becoming increasingly necessary and important for global contractors to carefully negotiate nationalistic buying tendencies of certain governments.

Issues by Project Type

Civil

  • Project delays continue to be among the largest of obstacles contractors face as a result of COVID-driven backlogs, labor shortages, and supply chain constraints.

Commercial/Industrial

  • A significant amount of capital is being devoted to the building of new data centers, battery factories and computer chip factories as the shift to electrification and on-line activity accelerates across the world.

Residential

  • The litigation climate surrounding newly built residential towers continues to weigh heavily on the industry.
  • With more homebuyers turning to new construction as the supply of existing homes for sale is sparse and expensive, single family home construction continues to enjoy material growth prospects.

Insurance Market Conditions

Rates

  • The market is stabilizing, although contractors with poor claims history continue to experience notable pricing increases.

  • There is increased competition from Property insurers to write Commercial Construction risks, combined with an overall decrease in the velocity of pricing movements.

  • Amongst construction risks, contractors with New York and/or residential exposures are experiencing the most significant year-over-year Casualty rate increases, along with the most restrictive terms. These risks typically require early planning and creative risk management techniques to secure the proper capacity or proper contractual insurance limits.

Undewriting Appetite

  • Appetite, in general, is strong, and insurers – now focused on growth over remediation - are competing for business. Terms and conditions – already adjusted at past renewals - are now considered to be more in line with market expectations.

  • There is a marked lack of appetite from insurers for particular segments of civil construction such as bridges and tunnels.

  • Non-wood frame residential projects remain attractive to the Builder’s Risk market, while wood-frame residential projects remain challenged and can be difficult to place in the traditional market.

  • As wildfires have grown in frequency and severity underwriters have begun excluding wildfire coverage for contractors and projects in wildfire-prone areas. The inability to obtain the contractual insurance limits required by owners has led contractors to forego large opportunities, especially in California.

  • In certain jurisdictions, the quantum and frequency of flood losses is negatively impacting the availability of the insurance.

  • The Casualty marketplace continues to treat residential projects unfavorably, mainly attributed to construction defect litigation and fear of class action lawsuits. This has only been exacerbated since the Surfside Condo collapse in Miami.

Capacity, Limits, Deductibles & Coverages

  • Capacity for most projects and contractors remains stable but is heavily restricted for bridges and tunnels as part of civil projects as well as for Builders Risk cover for wood-frame residential projects.

  • There is a trend amongst insureds to absorb larger deductibles to help offset price increases.

  • Excess requirements are driving an increase in underlying limits.

  • Flood exposed risks are under pressure to accept lower limits and increased deductibles.

  • Extensions of project specific insurances remain difficult as insurers look to modify terms and/or reduce capacity.

  • The Lead Excess/Umbrella markets for contractors have almost completely eliminated $25M layers, with smaller layers becoming the new normal.

  • There is an insurer push for increased retentions on loss-active risks, and an increased interest from insureds looking to increase their retentions to help mitigate premium increases.

What to Expect at Renewal

By Stakeholder Type

Projects (Owners and Contractors)

  • The Builder’s Risk market is expected to continue to stabilize, except for wood-frame, CAT exposed, and underground tunnel-related projects.

  • New project pricing is expected to moderate across broad swaths of the construction insurance marketplace.

  • Project extensions are likely to continue to be a major issue and topic of discussion, requiring upfront negotiation to avoid obstacles down the road.

  • Casualty insurers are expected to become increasingly comfortable with their current portfolios from a price and coverage standpoint.

  • The global capacity constraints faced in the Project Professional Liability space are expected to continue.

Contractors (Annual Practice Programs)

  • Favorable risks with comprehensive safety procedures are expected to experience strong competition and flat to moderate increases at renewal. Some insurers may consider price and term improvements in exchange for the deployment of safety technology on job sites. Contractors with unfavorable loss history will likely experience rate increases.

  • Auto Liability rates and excess attachment points will continue to be an industry-wide challenge, particularly for contractors.

  • Social inflation will continue to be an issue underwriters watch carefully.

By Project Type

Civil

  • Bridges and tunnels are expected to continue to find limited capacity in the market.

  • Coverage terms are expected to continue to tighten.

  • Retention increases – driven by both insurers and insureds (as a premium cost savings mechanism) are expected to continue.

Commercial/Industrial

  • Modest price increases are likely to continue for well-managed, clean renewals.

  • A strong focus on policy terms and conditions is expected.

  • As risk continues to become more complex, underwriting rigor will intensify, with extensive underwriting detail required for most risks.

Residential

  • Wood frame construction has been an underwriting concern for many years and will continue to be. As a result, appetite and capacity will remain limited.

  • Construction defect litigation will continue to draw attention from Casualty underwriters.

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