Construction Insurance Market Update 2021: Prepare Now

August 5, 2021

/Property & Casualty

For the 14th consecutive quarter, Q1 2021 saw premiums increase. However, there are signs that the pace of increase has begun to slow. The average premium increase overall was 10% in Q1, while the previous two quarters in 2020 saw 10.7% and 11.7% increases, respectively.

The construction insurance market saw numerous challenges in 2020, some of which, such as COVID-19, continue to make an impact. Individual coverage lines felt the pressure as well; most notably umbrella, auto, and cyber liability. Standard coverage lines of general liability and workers compensation saw small rate increases. Influences such as nuclear verdicts, social inflation, and escalating cyber risks continue to make carriers closely evaluate capacity and tighten underwriting standards.

Controlled Insurance Programs are also seeing carriers pushing rates and tightening terms in the residential and apartment space as a result of adverse loss development.

This Construction Insurance Market Update is intended to provide an overview to the dynamic and evolving insurance market, so you can establish realistic expectations for your insurance spend. As always, macro market events as well as areas within your control will drive your coverage terms and pricing; such as risk mitigation efforts, claims history, nature of operations, and volume of work.

Ultimately, those who are proactive in their approach and aligned with their insurance carrier and broker partners will mitigate surprises and secure the most favorable program terms in this market.

2021 construction industry premium increases

Workers’ Compensation

Market Trends (0–5+% increase)

  • Workers’ compensation has remained relatively stable as the competitive environment among carriers has kept this line desirable and close to flat rate for good performing accounts.
  • Carriers actively involved in the construction market are filing for modest increases in their manual rates to compensate for increasing medical costs.
  • The impact of COVID-19 on insurance claims has remained tempered.
Mitigation Strategies
COVID-19 concerns have been lifted as vaccination rollout has been quite successful but continuing to stay the course with maintaining safe working conditions and COVID-19 compliance.
OSHA continues to update and adjust their guidance.
Remain vigilant in your safety and claims management. Ensure that all of the programs you have in place and have continued to invest in are communicated to the insurance markets.

General Liability

Market Trends (5%–15% increase)

  • Q1 2021 reflected single-digit rate increases in General Liability for most construction risks.
  • Though rates continue to increase for the General Liability line of coverage, the pace has decreased. Insurers have experienced poor loss results for certain trades (e.g. street and road contractors), so it is important to identify the right carrier partners early on for your specific scope.
  • Standard markets have remained stable on terms this past year, but the surplus lines market is holding a strong line on attaching communicable disease exclusions.
Mitigation Strategies
Underwriters price for uncertainty, so the more detail you can offer an underwriter about your operations the less they will price for unknown risk.
Ensure your subcontractor risk transfer processes are current and well documented
Articulate to the underwriting community how your firm manages safety and quality control
With the hard market, underwriters have seen a material increase in submission flow. In order to get the attention of the right insurers, it is even more critical to provide complete submissions and to facilitate live or virtual loss control visits.

Auto Liability

Market Trends (10–15% increase)

  • Recording the 39th consecutive quarter of rising rates, Q1 2021 saw an average increase of 9.0%.
  • Woodruff Sawyer’s Commercial Lines Business Intelligence (CBLI) team studied automobile liability (AL) large case (settlements or awards greater than $15 million) trends from the available industry data sources. ADVISEN’s data source offers most relevant data attributes to conduct such a study, although it carries its own imperfections. The analysis included a multi-angle review to form an opinion.

upward trend in AL

Mitigation Strategies
Analyze various deductible levels that insurers may be presenting as alternatives. Conducting a review of losses at various deductible thresholds for liability and physical damage should be a part of the renewal process.
Explain how your company is addressing auto risk with the use of telematics, geofencing, driver training, and program enforcement. Ensure that you provide examples.

Excess Liability

Market Trends (15–35+% increase)

  • Umbrella prices continued to increase in Q1 2021 with an average increase of just under 20%. Though down from over 21% in Q4 2020, the Umbrella market continues to be a challenge for contractors, and we expect this trend to last until at least the end of 2021.
  • Much like previous quarters, nuclear verdicts along with frequency of severity claims once again drove the rate of increase.
  • Insurers have continued to look for opportunities to reduce their capacity (limits) they will offer, while demanding the same pricing.

umbrella premium change 2014 to 2021

Mitigation Strategies
Secure options for higher primary General Liability and Auto Liability limits or secure a buffer layer to raise your attachment point and attract additional lead excess carriers.
Utilize a quota share layering approach (multiple carriers sharing in limits) to attract more carriers to your account.
Ensure that you are providing quality information to the marketplace on any large losses that may implicate the excess layers.

Property/Inland Marine: Contractors Equipment & Course of Construction

Market Trends (5–15+% increases)

  • The fixed Property insurance market (i.e., large property portfolio with heavy earthquake, flood, and wildfire exposed risks) continue to see upward rate pressure. However, contractors can still negotiate competitive renewal terms for their equipment fleets and small property portfolios with favorable loss history and documented risk management protocols in place.
  • The contractors equipment market continues to face rate pressure because of ongoing losses due to theft, vandalism, and catastrophic weather events, but this remains in the mid-single digits. Insurance carrier interest and market capacity for contractors with good loss experience remains robust and can help mitigate pricing increases.
  • Builders risk policies, both project specific and master/renewable programs, are seeing small rate increases though pricing will vary based on losses and construction type of each project insured.
  • Pricing for project specific builders risk policies can be bifurcated into wood frame and all other construction types.
  • The wood frame marketplace continues to be a challenge as large losses put upward pressure on rates and deductibles, including reduced terms and conditions. Insurers are both withdrawing capacity and underwriting the general contractor chosen for the project more closely. Requirements including protective safeguards like cameras, on-site guards, fences, and lighting are becoming mandatory. Projects greater than $10 million in value are seeing multiple insurers required to provide the limit necessary.
  • For non-combustible projects insurers continue to provide extensive capacity and broad terms and conditions at competitive rates year over year.
  • Outside of fire losses, water damage claims continue to be the greatest challenge and carriers are increasing their minimum deductibles to mitigate costs.
  • In the wake of COVID-19, virus and communicable disease exclusions are becoming standard on Inland Marine and Property policies.
Mitigation Strategies
Document risk mitigation techniques for your equipment fleet. Tracking devices (GPS) and detailing project site and storage yard security measures will help in negotiating competitive terms and pricing.
Detailed underwriting information, project security measures, and risk management plans will aid in favorable new and renewal pricing for Master Builders Risk programs, as well as project.

Professional & Pollution Insurance

Market Trends: (flat to +/-5%)

  • Professional/Pollution Liability Insurance Market: Rates remain flat with no material change in practice policy capacity due in part to a saturated insurance market.
  • Beware of renewal or supplemental application questions and/or underwriter questions related to project delays due to COVID-19 and/or communicable disease.
  • Contract documents for public and private projects are requiring higher coverage limits.
Mitigation Strategies
Establish a renewal strategy early; communication with client and insurer(s) especially since this line is generally written with non-admitted insurers who don’t have the pre-renewal notifications required of admitted insurers.
Submission of renewal specs to insurers should clearly outline expectations. (Carefully review the definition for “professional services,” making sure it is broadly written and consistent with the insured’s activities/operations).
Claim-made and reported for professional liability: Insureds should understand the importance of disclosing matters that could lead to a potential claim under this coverage line. Most insurers allow for reporting of legitimate potential situations without penalty.
Review renewal exposures against expected and prior years. Policies are generally flat rated, revenues may be down, and possible uncertainty with revenue projections. Some insurers with automatic renewals might warrant requotes.

Management Liability (Directors & Officers Liability and Employment Practices Liability)

Market Trends (10–15% increase)

  • Coverage for Directors & Officers Liability, Employment Practices, and other Executive Lines of insurance continue to be a challenge in Construction.
  • In addition to rate pressure, many carriers are increasing self-insured retentions on renewals.
  • Sexual Harassment, workplace bullying, and hostile work environment tend to be the leading matters being reported to the insurers.
Mitigation Strategies
Utilize carrier resources and counsel specializing in employment law to craft your risk management and human resource procedures. Bridge the gap between HR, safety, finance, and operations to conduct an enterprise approach to help mitigate the risks associated with the ever changing legal and compliance environment.

Cyber Liability

Market Trends (20–50% Increase)

  • Cyber was among the most notable to see a rise in premiums with an average increase of 18% and a number of clients seeing premiums rise in excess of 80%.
  • Ransomware losses are piling up for carriers, which is driving more underwriting scrutiny in the form of additional supplemental applications and enhanced security requirements.
  • An increase in both claim frequency and severity contributed mightily to the acceleration in premiums.
  • There also continues to be a huge increase in demand for cyber insurance due to the increased risk in ransomware attacks, digital workforce, and an increasingly unfriendly regulatory environment.

Ransomware Underwriting Information

As Ransomware severity and frequency continues to rise, Cyber insurers have now started requesting additional underwriting information around defenses they expect companies to have implemented to protect themselves from a ransomware event.

Below are minimum controls (without which you will be vulnerable), baseline measures for stronger protection, and practices that will provide the best protection.

Mitigation Strategies
Continue to invest time and resources in IT security controls and policies. Gather quality data sets on your current Enterprise Information Security practice and protections. Be prepared to answer questions relative to your security measures taken as workers operate in a remote environment. A ransomware supplemental application and the requirement for multi-factor authentication have become required by many underwriters to even quote on a risk.
Outline your vendor management controls if you rely heavily on third-party vendors for any key IT and security services.
Take advantage of all training your insurer may offer.
Minimum Protection

Email Security

  • Email Tagging
  • Email Content and Delivery – Sender policy framework (SPF) checks
  • Office 365 add-ons and configuration

Back-up and Recovery Policies

  • Back-up key systems and databases

Internal Security

  • Deploy and maintain a well configured and centrally managed antivirus solution
  • Macros – limit use of
  • Patching Cadence
  • Well-defined and rehearsed incident response process
  • Educate your users (phishing training, etc.)
Baseline Protection

Back-up and Recovery Policies

  • Regular testing of back-ups
  • Disconnect back-ups from organizations network
  • Separately stored, unique back-up credentials

Internal Security

  • Establish a secure baseline configuration
  • Filter web browsing traffic
  • Use of protective DNS
  • Manage access effectively (i.e. MFA, privileged access)
Best Protection

Back-up and Recovery Policies

  • Encrypted back-ups

Internal Security

  • End-point detection and response (EDR) tools
  • Comprehensive centralized log monitoring
  • Subscription to external threat intelligence services
  • Network segregation (i.e. via access control or well-configured firewall)

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