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Article | UK Construction Risk

Construction insurance market update - the reaction to COVID-19

Risk & Analytics
COVID 19 Coronavirus

By Jon Thacker and Steve Cox | July 3, 2020

This article explores the current state of the construction insurance market and the multiple ways in which COVID-19 has had an impact, as well as our predictions for the future.
Construction insurance market update - webinar replay

During 2019 the construction insurance market was showing signs of quite significant hardening, both in terms of premium rate increases and deductible increases being applied – particularly for projects with water damage exposures - in the wake of some large losses that hit insurers in both 2018 and 2019. As we approached year end all eyes looked to 2020 to see if that hardening would continue. Willis Towers Watson UK Construction Team issued our prediction that terms would certainly continue to harden and the broad coverage on offer might also start to become more limited.

Throughout 2019 the losses that had previously eroded insurers’ profitability continued, with water damage losses occurring on a regular basis, despite insurers’ attempts to bring a risk management focus onto this topic. Insurers have talked to us about their need to take action and influence their and our clients in future risk management initiatives, but also to make them aware that even after some rate increases during 2019, the products being offered were still uneconomical for them to provide at the current rating.

In the first quarter of 2020 we were witnessing continued rate increases, requests for more information and risk management engagement, as well as increased deductible and some of the broad coverage of the past become much harder to obtain. We also saw a sharp correcting in the excess third party liability market with premium rates jumping by anything up to 100% of the expected price.

This occurred before COVID-19 really kicked in, at which point  we all had to become accustomed to negotiating over the phone, or via a video conferencing platform. We have now entered a time in the insurance market that none of us has ever encountered before, nor want to see again. Remote working in a people business certainly has some challenges, but our systems have worked extremely well, and we are all now far more familiar with  the methods of communication available to us.

The response from an insurance perspective has been one of uncertainty, as both clients and markets try to understand what COVID-19 means to them and their business. On several projects which have experienced a cessation of works, or significant slow-down, we have been asked to notify potential claims under the Delay in Start Up (DSU) section. This is interesting in its own right as the trigger for the delay generally needs to be a delay caused by a loss or damage event under the contract works section. But,  we have placed many projects with broad policy coverage and some element of cover for delay caused by notifiable disease, and there is also the potential trigger of a denial of access.

The response from an insurance perspective has been one of uncertainty, as both clients and markets try to understand what COVID-19 means to them and their business

Insurers’ reaction to the notification of potential claims, almost immediately after lockdown, was to impose new COVID-19/communicable disease exclusion clauses across the board – often, even to policies or sections where there was no previous intention to provide any protection against communicable disease. In the early days after lockdown we saw each insurer providing their own different version with no consistency on the restriction in cover. In more recent weeks the Lloyds Market Association (LMA) have tried to provide some consistency in approach by drafting their own versions which have become generally acceptable to many of the markets, which at least allows some consistency of the exclusion applying to scheduled placements.

However, even the LMA drafted communicable disease exclusions, in our opinion, leaves a lot to be desired. LMA5397 includes the following1:

this insurance does not insure any loss, damage, claim, cost or expense of whatsoever nature directly or indirectly caused by, contributed to by, resulting from, arising out of, or in connection with a Communicable Disease or the fear or threat (whether actual or perceived) of a Communicable Disease regardless of any other cause or event contributing concurrently or in any other sequence thereto

We have highlighted in bold the areas of this exclusion which we feel go beyond the intent to exclude actual loss or damage events associated with COVID-19 or other examples of communicable disease. We have discussed this exclusion with many insurers and they largely appear to share the view that they would not look to this exclusion to exclude otherwise valid insurance claims, just because the country was in the grip of this or a future pandemic.

We have additional concerns with the drafting of the definition of communicable disease but we are being left with no alternative but to accept this particular exclusion as the ‘least worst’ of those available.

As far as we have experienced, this, or similar exclusion, is being added to all contract works or erection all risks policy renewals or new project placements. We understand that this will be the standard position for our market for the foreseeable future, although we do hope that some softening of the language may be allowed and to be endorsed onto policies that have this type of exclusion later in 2020 or in 2021. 

As far as policy extensions on existing policies are concerned, as and when we have been asked to extend the period, insurers have sought to impose an exclusion. We have fought hard to resist these as - certainly for single project placements - the terms and conditions negotiated at inception are agreed to be in place for the duration of the project without amendment.

In the post-lockdown market, we are seeing other changes to terms and conditions on an almost weekly basis

In the post-lockdown market, we are seeing other changes to terms and conditions on an almost weekly basis where insurers are looking to drive up rates and excesses and seeking to remove or limit some covers. These changes include premium rates, excesses, removal of any aspects of cover from DSU, continuation of changes to water damage and cyber.

Another issue we would like our clients and prospects to consider in this current hardening market is that insurers are requesting even greater amounts of information of a much higher level of detail and of better quality, before they will even consider providing quotations. In addition to this, each enquiry, whether it be single project placement or part of an annual programme, is taking much longer than it has taken previously in response times from insurers. Previously we would expect insurers to provide answers within a week to ten days - now that has probably doubled or more - simply to look through the information and wording before reverting with terms or to ask additional questions.

In defence of insurers, the combination of the challenges of remote working during COVID-19 and the already hardening insurance market, has resulted in underwriters having to seek approval from colleagues of their quotes, terms and conditions. Some of those who previously had underwriting authority now have to seek approval at a much lower level than before, thereby increasing timelines of an enquiry.

Quotations that insurers provide are often now held open for a maximum of 30 days, after which time if they are not taken up, they will be reconsidered and possibly increase the premium rates.

In addition, whilst there is still a huge amount of capacity available to write large projects, there are a fewer lead insurers who are looking to provide terms. Many insurers are reluctant to provide lead terms, preferring to see what others are offering before offering support terms, and with more looking to follow than to lead.

Our prediction is that the construction industry is certainly going to see increases in premium rates during 2020 for both single project placements and annual programme insurances.

For further guidance and additional information on the above, please get in contact with the team.


Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for COVID-19. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include COVID-19 coverage.

The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third party sources we consider to be reliable, however we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort, or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates.

COVID-19 is a rapidly evolving situation and changes are occurring frequently. The information given in this publication is believed to be accurate at the date of publication shown at the top of this document. This information may have subsequently changed or have been superseded and should not be relied upon to be accurate or suitable after this date.



Executive Director, Business Development, UK Construction Practice

Executive Director, UK Construction Practice

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