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Construction Insurance Market Update Q1 2022: New Challenges and Uncertainty

July 1, 2022

/Property & Casualty

Perhaps unsurprisingly, construction market premiums increased in Q1 2022, continuing a consecutive trend that began 18 quarters ago. Previous issues related to COVID-19 were replaced by new challenges, including inflationary pressures, international supply chain disruption, and economic uncertainty.

However, despite the convergence of these economic challenges, there are signs premium increases are beginning to moderate across most lines. Yet, in line with the previous few quarters, the cyber and umbrella markets continue to see double-digit increases. Due to increased demand and decreased capacity, cyber carriers heavily scrutinize each submission under increasingly stricter underwriting requirements.

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

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We recommend working closely with your broker early in the process to establish a clear marketing strategy, develop a renewal budget, secure adequate underwriting details, and, when necessary, schedule carrier meetings with leadership to best tell your story. Buying decisions may warrant an evaluation of varying retentions, alternative risk financing, and program limits.

Ultimately, those who are proactive and transparent in their approach will mitigate surprises and also secure the most favorable program terms in this market.

Average Premium Changes

Workers’ Compensation

Market Trends (1–5% increase)

  • Workers’ compensation (WC) continues to be one of the more desirable lines of business for carriers. This factor is driven by expected loss rates dropping 10-14% in construction class codes.
  • However, manual WC rates are continuing to increase at a modest rate to compensate for increasing medical costs.
  • The combination of good performance with increasing manual base rates has stabilized the WC pricing environment. Well-performing accounts may receive modest rate decreases while flat to 5% increases remain the norm.
  • Payroll allocation guidelines have become more stringent, making WC audits difficult.
  • The impact of COVID-19 on insurance claims has been minimal.
Mitigation Strategies
OSHA continues to update and adjust its guidance. You can read about in CA OSHA Guidance.
Ensure you provide specific details around your Return-to-Work Program. What steps are you taking to minimize the cost of claims when they arise?

General Liability

Market Trends (0%–5% increase)

  • Q1 2022 reflected flat to low single-digit rate increases in general liability for most construction risks.
  • The construction industry is seeing more stability and consistency in the pricing coming from the major construction insurers. Rates continue to increase for certain industry segments, but the pace has certainly slowed. Contractors performing residential work and high-hazard wildfire exposures remain the most problematic areas. Identifying the right carrier partners to fit your business needs early in your renewal cycle is essential.
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 how your firm manages safety and quality control to the underwriting community.
Ensure that your submission gets the attention of the right insurers. It is even more critical to provide complete submissions and to facilitate live or virtual loss control visits when necessary.

Auto Liability

Market Trends (5–15% increase)

  • For the first time in five years, the auto industry’s combined ratio dropped below 100%. (See S&P Global Commercial Auto Chart).
  • The cumulative impact of rate increases over several years has finally allowed auto insurers to collect premiums that exceed their net costs.
  • The market continues to experience social inflation and nuclear verdicts impacting claim results, but rate increases have begun to decelerate.
Mitigation Strategies
Implementing technology tools such as telematics and geofencing is critical for any insured with larger fleets, and the number of telematics offerings is widespread.
In addition, effective driver training and program enforcement are a must for those with material auto exposure.

Industry Commercial Auto Combined Ratio

Excess Liability

Market Trends (7–20% increase)

  • Umbrella prices continued to increase in Q1 2022 with an average increase of 10.5%. Though down from over 19.7% in Q1 2021, the Umbrella market continues to be a challenge for Contractors.
  • We are beginning to see new entrants coming into the Excess Insurance markets, providing additional competition and capacity.
  • Insurers have continued to look for opportunities to reduce the capacity (limits) they will offer while demanding similar pricing. However, with new entrants coming into the market and offering up limits, we’re seeing more predictability and stability in support for larger excess towers.
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 (5–20% 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 as well as increases on building valuations. Through the first quarter of 2022, rate increases averaged 8.6%.
  • Contractors with relatively small property portfolios and favorable loss history can still negotiate competitive renewal terms for their equipment fleets.
  • The contractors’ equipment market continues to face rate pressure because of ongoing losses due to theft, vandalism, and catastrophic weather events, but these losses remain in the mid-single digits.  Insurance carrier interest and market capacity for contractors with good loss experience remain robust and can help mitigate pricing increases.
  • Those contractors with larger losses (thefts, etc.) can expect and may use increased deductibles to help mitigate rate increases moving forward.
  • Builders’ risk policies, both project-specific and master/renewable programs, are seeing small rate increases though pricing will vary based on losses and the construction type of each project insured.
  • Deductibles on master builders’ risk policies continue to rise with particular focus on water damage. Minimum deductibles now start at $50,000 but are more commonly $100,000–$250,000 per occurrence for larger projects.
  • 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. Mandatory protective safeguard requirements can include cameras, on-site guards, fences, and lighting. Projects greater than $10 million in value are seeing multiple insurers required to provide the necessary limits.
    • For non-combustible projects, insurers should continue to provide extensive capacity and broad terms and conditions at competitive rates.
  • Outside of fire losses, water damage claims continue to be the greatest challenge, and carriers are increasing their minimum deductibles to mitigate costs.
  • For those projects with increased design exposure (design-build contracts, in particular), costs to add coverage enhancements like the LEG 3 endorsement continue to rise in combination with increased deductibles and lower sub-limits of coverage.
  • Project extensions for builders’ risk also continue to be an issue with surcharges on rates and increased deductibles required to extend the policy beyond the agreed end date. Allow 90 days in advance to request and process extensions on wood frame projects and 60 days for all other construction types.
  • In the wake of COVID-19, virus and communicable disease exclusions are virtually standard on builders’ risk, contractors’ equipment, 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.
Recent building valuations and building updates, including documenting and confirming recent electrical and plumbing improvements, help underwriters provide competitive terms.
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-specific policies.

Premium change commercial property

Professional & Pollution Insurance

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

  • The pollution market remains steady with an increase in demand matched by an increase in carriers entering the market.
  • For professional liability, project-specific capacity is beginning to shrink as carriers are becoming more selective.
  • Additionally, carriers are more aggressive in their due diligence for submissions, particularly for design-build contractors. Note that virtually all carriers are requiring design builders to secure minimum insurance requirements for any design subcontractors utilized on a project.
Mitigation Strategies
Establish a renewal strategy early. Communication with client and insurer(s) is critical, especially regarding the specific services and obligations contractors are assuming under their risk profile.
Submission of renewal specs to insurers should clearly outline expectations. Carefully review the definition for “professional services,” ensuring it is broadly written and consistent with the insured’s activities/operations and includes work performed “by or on your behalf.”
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. As policies are generally flat rated, ensure you are using reasonable forecasts. Some insurers with automatic renewals might warrant requotes if there are material changes.

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

Market Trends (7-10% increase)

  • Q1 2022 saw a 7.8% average increase in D&O pricing. Recently cited as a line facing increased pressure, D&O is beginning to show moderate price increases.
  • Self-Insured retentions continue to increase on renewals, but carriers expect retentions to stabilize.
  • Employment practices liability can expect double-digit increases in retentions and pricing.
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

Market Trends (25%–50% Increase)

  • Cyber was among the most notable to see a rise in premiums, with an average increase of 27.5% and with several clients seeing premiums rise well above 50%. Most cyber carriers are increasing retentions in parallel with premium increases.
  • Ransomware losses are piling up for carriers, which is driving more underwriting scrutiny in the form of additional supplemental applications and enhanced security requirements.
  • The increase in the frequency of claims, the severity of claims, and decreased capacity in the marketplace have caused tensions between contractors, brokers, and carriers.
  • There also continues to be a huge increase in demand for cyber insurance due to the increased risk of ransomware attacks, digital workforce, and an increasingly unfriendly regulatory environment.
  • Carriers have enforced stricter underwriting requirements, with a majority requiring multi-factor authentication before providing a quote. Insureds without or with insufficient controls are being denied renewal coverage terms.
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 about your security measures for remote workers. 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.
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.
Take advantage of all training opportunities your insurer may offer.

Construction protections table

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All views expressed in this article are the author’s own and do not necessarily represent the position of Woodruff-Sawyer & Co.

Kevin Moore

Associate Producer

Kevin focuses on providing customized risk management solutions and information to businesses, and works to build and maintain market relationships toward that end. He's passionate about advocating for clients and representing their needs, from strategic planning to ongoing insurance program management.

925.520.7469

LinkedIn

Kevin Moore

Associate Producer

Kevin focuses on providing customized risk management solutions and information to businesses, and works to build and maintain market relationships toward that end. He's passionate about advocating for clients and representing their needs, from strategic planning to ongoing insurance program management.

925.520.7469

LinkedIn