Construction insurance markets are continuing to tighten, with renewals and extensions not a sure bet, stricter limits on coverage for the riskier categories and premiums climbing steadily higher, brokers report.
Driving the increases are losses sustained in recent years and the combined uncertainty of the COVID-19 pandemic, project interruptions, safety costs and higher material prices.
Since early 2018, base pricing of risk is up 25%, reports Marsh, the big brokerage. Excess and umbrella insurance renewals, which kick in after limits are reached under other policies, are costing 50% to 100% more on renewal and are increasing, says Willis Towers Watson, another big brokerage.
The size of price increases varies greatly according to a company's project type and loss history.
Excess casualty insurance coverage, for loss of property, damage or other liabilities, including workers' compensation, is especially difficult. "Many carriers," says Marsh, "are pushing for pricing increases, deploying lower limits and increasing attachment points," to the level of loss where the coverage would kick in.
Depending on the loss experience of a contractor, rates for general liability coverage renewals are 5% to 25% higher, builders' risk is up 5% to 20% and subcontractor default insurance 5% to 10% more, states Willis Towers Watson.
Costly claims have brought stricter underwriting, Marsh reports. Carriers are not automatically granting extensions on the same terms for ongoing projects that take longer to be completed.
The Marsh report echoes the early 2021 analysis by Willis Towers Watson, which characterized the construction insurance market as one that "remains very difficult, with upward price pressures."
"The economic downturn caused by COVID-19 has resulted in many contractors forecasting lower exposure bases; sales, payrolls, contract revenue, vehicle count, etc.," wrote Willis Towers Watson. "But as exposures decline, insurers are raising rates at an increasing pace to grow or at least maintain overall premium."
Builders’ risk capacity continues to shrink, too, says Marsh. Insurers “are rarely willing to guarantee pricing for more than 12 months” unless a client commits to specific projects for that time, the brokerage reports.
Environmental coverage is likely to involve questions contractors have not faced before, with insurers cautious about risks involving polyfluoroalkyl substances (PFAS) and other long-lasting chemicals, and mold.
Some insurers are tacking on COVID-19 or communicable disease exclusions to contractor pollution-risk policies. Most insurers are adding the exclusions to liability policies. And, Marsh reports, project delays due to the pandemic and ensuing lockdowns are "straining" pollution policies approaching or exceeding their maximum insurance term.
Professional Liability: A Challenge
A comparative bright spot is professional liability coverage for contractors. Those firms with a good loss history can expect renewal increases of just 5% and 10%. Insurers also are not attaching COVID-19 exclusions to those types of policies.
Yet design-build can also present professional liability challenges for contractors. Underwriters, says Marsh, are scrutinizing public-private partnerships and fixed-price design/build projects, in which “contractors have suffered financial losses" due to the delivery methods. Those losses “can translate to professional liability claims,” says the brokerage.
Although it has been used successfully for at least 20 years," notes Edward L Sheiffele, Jr., executive vice president of insurer Berkley Construction Professional, "more issues tend to arise when design/build is used for heavy civil infrastructure projects that are won on a lump sum basis or use a fast-track project."
Professional liability coverage for designers is an evolving challenge. Darren Black, architects and engineers practice lead at Risk Strategies, an insurance broker, says complications are multiplying.
"Meeting the standard of care to avoid tort liability and damages for allegedly negligent performance of professional services has always been a moving target," says Black. "What is expected of design professionals is an increasingly onerous burden due to the implications of climate change, the pandemic and other macro trends such as active shooters."
Climate change has already impacted the standard of care for design professionals, adds Andrew D. Mendelson, chief risk management officer of insurer Berkley Design Professional. He cites the complications of engineers designing for floods while FEMA flood maps are out of date.
Engineering is considered a scientific profession and there is an expectation that engineers should be able to anticipate the impact of climate change on aspects of resiliency in design, says Mendelson.
"If the tools they’re using are outdated or inaccurate," he says, "how can they be expected to design structures and infrastructure projects that withstand severe weather events? Consequently, professional liability claims have evolved from storm water management situations, such as downstream flooding from a site under development, where code requirements were met but were not sufficient to handle the storm."
In general, Marsh writes, submissions to insurance carriers for coverage will need to be more detailed and complete. Higher prices, Willis Towers Watson reports, eventually attract more capital and capacity.