Contractors who have survived an unprecedented combination of challenges in 2020 and early 2021 may be in for a windfall later this year, as a growing percentage of the population becomes vaccinated against COVID-19, the economy rebounds and government spending fuels an expected surge in infrastructure spending.
They’ll need the work to pay for the insurance necessary to remain in business.
While good times appear to be on the horizon, builders and associated businesses will continue to suffer effects of damage incurred in 2020 and earlier. The primary culprits of the hard market for Property and Casualty Insurance in the construction industry:
- Weather-caused catastrophes that have created massive losses and driven up building and repair costs;
- Accident rates, liability lawsuits and nuclear verdicts that have caused Commercial Auto Insurance rates to soar and pushed buyers into the Excess Liability market;
- COVID-19, which produced a higher rate of infection among construction workers than in any other occupation; halted or delayed projects; and made builders wary of increased hiring, even with the promise of lucrative work in the months ahead.
How they address their Property and Casualty Insurance program in 2021 will be a major factor in whether members of the construction industry position themselves to thrive in 2022.
The Outlook Entering 2021
Here’s the landscape for the construction industry as outlined in Alera Group’s Property & Casualty 2021 Market Outlook whitepaper, released in December 2020:
► Higher pricing, more restrictive coverage terms and reduced availability and capacity continue: This is expected to last into the first half of 2021 as insurers grapple with increased claims cost, a lack of profitability, customer insolvencies, uncertainties about the construction industry outlook and the ultimate impact of COVID-19.
► Commercial Auto and Umbrella/Excess Liability present the greatest challenge: The rate of increase in Commercial auto may be slowing, but it is accelerating in Umbrella and Excess Liability. In Excess Liability, insurers are reducing capacity and requiring higher primary attachment points. Excess Liability insurers continue to push for rate increases on larger fleets even when accounts are performing well.
► Some segments are more impacted than others: These segments include frame construction, habitational and street and road operations.
► Communicable Disease Exclusion increasingly common: This varies by carrier, coverage and state. Some states are strict about reductions in liability coverages for existing policyholders.
► Uncertainty from an underwriting perspective: Labor shortages, restrictive working conditions due to COVID-19 safety concerns and breakdowns in the supply chain are hurting productivity and delaying projects. The longer projects take to complete, the higher the exposures and the likeliness that there will be claims. Uncertainty leads to additional scrutiny and more conservative underwriting.
► Increased focus on jobsite conditions: Insurance companies want detailed information on the number of people on the job, jobsite infection rates and the COVID-19-related protocols that are in place.
Among lines of coverage, Commercial Auto, General Liability, Property (including Builders Risk) and Umbrella/Excess looked to be trending against insurance buyers in the construction industry, with rates continuing to rise, availability limited, capacity restricted (reduced limits, additional exclusions), and underwriters exercising greater scrutiny and selectivity.
The forecast was better for Pollution Liability coverage, though underwriters were showing heightened scrutiny and selectivity as regulators increased their focus on emerging contaminants. The one line of coverage exhibiting stability across the board was Workers’ Compensation, but that was subject to change, given an influx of unskilled labor and the likelihood of increased injuries as a result. In addition, the outlook for Workers’ Comp can vary based on individual state regulations.
To obtain the entire Property & Casualty 2021 Market Outlook whitepaper, click the link below.
One of the key takeaways from 6 trends that will influence construction this year, an article published in the trade publication Construction Drive, is that vaccinations and an economic revival will come too late to save many subcontractors. According to the president of one New York City builder, many general contractors are now keeping in-house work they formerly subbed out.
Citing insurance costs as one of the hardships subcontractors are facing, AA Jedson Company President Michael Bordes told Construction Dive, “We’re self-performing most of the construction tasks ourselves because the subcontractors that are out there are having a very hard time. The people we’re dealing with may not be transparent about saying ‘We're having trouble with assurances’ or ‘We're short on labor.’ If you keep [work typically performed by subcontractors] on your payroll, you at least have 95 percent control.”
Another key takeaway: Promising economic forecasts and a reluctance to hire subcontractors have not yet produced a boom in hiring and training.
"The story there is that projects are still getting pushed to the right, so companies are not hiring unless they have a job to put someone on,” Patrick Jones – who leads the architecture, engineering and construction division at Raleigh, North Carolina-based recruiting firm Orion Talent – told Construction Dive. “They’re not just out there building bench strength.”
From a risk management and insurance standpoint, that is not a good approach.
What You Can Do
Have a qualified workforce and proven risk management program. Do due diligence in hiring, provide your staff with training that exceeds government standards, implement and reinforce best practices in risk management, and be prepared to market yourself through your agent or broker. When seeking coverage for a particular project, document and demonstrate why it’s a good risk.
Underwriters will be paying close attention.
Here’s what John Shaw, Construction and Engineering Underwriter for the global specialty insurer Canopius, recently told Insurance Journal:
Clients and brokers who “engage early with specialist underwriters” and help them understand their approach to risk management will see preferential treatment through the underwriting market “because the underwriters understand what good looks like versus what the standard is.
“We want information. We want to delve into the project presented to us. I think by presenting a far more open book, we are able to see how you differentiate yourself from your neighbor, and ultimately, that’s going to result in additional offering coming forward.
Get an early start. Assembling the information your agent or broker will need to provide underwriters takes time, and in an increasingly selective market, a good agent/broker will want to cast a wide net to find the right carrier.
Work with an agent or broker who knows your industry, your region and your business. A knowledgeable agent/broker can design a customized program, matching your organization with a carrier whose strengths meet your needs. Working with an Alera Group representative ensures both local service and national scope.
Gain a better understanding of commercial property insurance ratings. Alera Group’s brief guide provides insights on contributing factors such as construction, occupancy, protection and exposure.
About the Author
Kurt Sokolowski, CIC
TriSure, an Alera Group Company
Kurt Sokolowski is a senior partner at TriSure and a Certified Insurance Consultant (CIC). He assists two main groups of clients with insurance and risk management needs:
- Construction: General contractors and subcontractors require comprehensive coverage and a partner who understands the industry. Kurt has worked with construction companies for more than 10 years.
- Sports Camps: Kurt is a former assistant head soccer coach and player at North Carolina State University. He brings this experience and expertise to his work with coaches and assistant coaches who run youth sports camps in North Carolina, South Carolina, and Virginia.
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