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Professional liability market trends and their impact on construction projects

Construction Blueprints Podcast: Season 2 – Episode 1

January 18, 2024

An informative podcast series that brings you the latest perspectives from the construction industry.
Financial, Executive and Professional Risks (FINEX)

Professional liability (PL) markets have experienced dramatic changes in recent years and the construction industry was significantly impacted by those shifting market conditions.

In this episode of Construction Blueprints, Maria Sanchis, Global Construction Broking Leader, Roberto Felipe, Client Management Director, and Cynthia Olinger, North American Construction Professional Liability Practice Leader, discuss the current state of the PL market and the latest trends impacting construction projects.

Professional liability market trends and their impact on construction projects

Transcript for this episode:

Construction Blueprints Season 2 Episode 1: Professional liability market trends and their impact on construction projects

SPEAKER 1: Modular construction is becoming increasingly popular. So, we need to find a way to find a solution.

SPEAKER 2: Welcome to the WTW Podcast Construction Blueprints, where we discuss the latest risk management and insurance trends as well as, issues facing the construction industry. We'll speak with a variety of construction leaders and experts on global topics who can help provide you a blueprint for building your industry knowledge.

Modular construction is becoming increasingly popular. So we need to find a way to find a solution.”

Cynthia Olinger | North American Construction Professional Liability Practice Leader

MARIA Sanchis: Hello. And welcome to our WTW Construction Blueprint Podcast. I am your podcast host. I'm Maria Sanchis, Global Construction Broking leader. And I am delighted to be joined by Roberto and Cynthia. Roberto, would you like to introduce yourself?

ROBERTO Felipe: Sure. Hi. I'm glad to be here today. I'm Roberto Felipe. I'm based on our London office here in WTW. And I'm a Client Management Director on the construction team.

MARIA Sanchis: Great. Cynthia.

CYNTHIA OLINGER: Hello. Cynthia Olinger. I am the North American Construction Professional Liability Practice leader. I'm based in San Francisco and very happy to be here today.

MARIA Sanchis: Great. So just let's get started. Roberto, can you give us a quick overview of the current state of the professional liability market from a London and an international perspective?

ROBERTO Felipe: Sure. First, it's important to separate, a little bit, the annual practice from single projects or also known as, PSPI in the US or SPPI, internationally. For our annual practice, first, we can definitely see a deceleration on the rate and more stabilization of the market, internationally.

There is still some understanding that this stabilization was achieved on the back of some rate increases and not any ease of notifications and claims. So, there is still some focus on rate. Having said that, and I think also, aligned with the fact that most companies found their balance with capacity deployment and risk selection, the market is giving some signs to be more open for business, than in recent previous years, with the redefined risk selection of the companies and the underwriters and with capacity management done. I think, the insurance market, internationally, is more willing to write annual policies within their appetite.

So we'll continue to see a few restrictions about specific points not within their appetite such as restrictions on cladding and fire safety, new technology, mostly for London, Australia, Middle East, for instance. But more competitiveness on risks within appetite.

On the other hand, for single projects, I can say that there is a little bit more capacity or willingness to see projects and start reviewing them. Although, there is a lot of restrictions still, to be honest. And even the markets that are going back to or starting to dip their toes in the water are still looking very cautiously and not willing to write a ton of projects.

MARIA Sanchis: Cynthia, are you seeing the same trends in the North American, professional liability market in terms of appetite for both annuals and project specific?

CYNTHIA OLINGER: In some ways, I would say, we are. But I think, the market in North America has been a bit more stable than internationally. We have not seen some of the losses and the appetite restrictions that Roberto has experienced.

We've had a number of new entrants into the market, in the past few years, that has really helped in that regard as well. So as far as rates, we haven't been experiencing severe rate increases and carriers that have been attempting to push for rate increases. They've been achieving them in limited areas.

Certain areas, definitely are open for additional underwriting scrutiny. For sale residential, it's been that way for a while. I wouldn't say that's changed, but that is an area of increased scrutiny. And heavy infrastructure projects are becoming more common and, definitely, experienced more underwriting scrutiny and maybe, lower deployment of capacity. For annual programs, I'd say we're in a much more. Stable, conditions projects, we do experience some more limited appetites. So, there's a little bit more challenge on the project side here in North America.

MARIA Sanchis: And Roberto, is there a specific sector that's been particularly scrutinized from an international London perspective-- like, with any type of controversial type risks that you might want to mention and maybe, reasons for this?

ROBERTO Felipe: Yes. So one, that in the recent years have been really scrutinized, is residential projects, especially for high rise, health care universities, et cetera. But all due to cladding and fire safety, all of these fire safety element. And not only in the UK but also, in Australia and Middle East. These have been a big issue, because of the use of non-compliant materials, combustible materials that generated losses across the market. So I think, for the last five years, probably, that's been a red flag.

A more recent one is on the energy side, especially exposure to coal energy to 25% of contract split. And that's on the back of companies, ESG guidelines, and policies. So there's been a restrict to how much the companies can actually insure, companies that are doing coal energy projects.

MARIA Sanchis: Yeah. I think that overall, new, never tested environmental suitable materials is a hot topic for our construction industry as a whole-- also, things like offsite, modules, pots, panels, and components. Cynthia, how have these issues impacted the professional liability market in terms of levels of coverage that carriers are willing to offer, for example, on design defect?

CYNTHIA OLINGER: It's an excellent question, especially-- I'm glad you brought up modular construction, offsite modular construction. It's something we're talking about, frequently now, because we know where does the construction design start versus a product or manufacturing type of Arizona mission exposure.

And it's something that I would say, at least in North America, we don't have a great solution for yet because the contractors' professional policies are not meant to pick up product design, right? Whereas the product E&O policies and manufacturing E&O can pick up some component of that. That's a very difficult placement. And we're left with a bit of a coverage gap. That is something the industry really needs to be thinking about, and we are thinking about and talking about.

I've had numerous conversations just in the past few weeks on this particular topic. And we're getting to a point where we need to find a seamless solution for our customers who have these risks. Modular construction is becoming increasingly popular, so we need to find a way to find a solution.

MARIA Sanchis: And what are your thoughts on the uses of cross-laminated timber, and how are carriers also viewing this? As I said, it's a hot topic I see in the professional liability space.

CYNTHIA OLINGER: Yeah, I'd say our markets aren't digging deep into that topic yet. We have always had the wood frame distinction for projects. Nobody loves to ensure the wood frame projects anyway. Cross-laminated timber, I would say, is not a huge topic for us yet in North America, but certainly an emerging one.

MARIA Sanchis: What about you, Roberto? Can you maybe elaborate a little bit more on the perception of these topics in terms of never-tested materials? Maybe the digitization of design and the uses of laminated timber in the international space. Is it different than what we're seeing in North America?

ROBERTO Felipe: I don't think so. From what Cynthia has just said, I think international is pretty much the same view. And we'll always have challenge with new technologies, right? This is something that the market's very reluctant to take on and accept, and always scrutinized and reviewed in detail what the exposure is, how much it can be tested on real situations. So that's definitely a concern, specifically on cross-laminated timber, it's not something that I've come across internationally as an issue either. Definitely on modular. So to some extent, it's glad to hear that overall, the markets-- we are in synergy in that sense. It is a challenge that we do not have a proper answer to yet. But as it's being increasingly used, we're going to have to come up with something fast.

MARIA Sanchis: Thank you, Roberto. And can you tell us a little bit more about the latest development concerning reinforced autoclaved aerated concrete?

ROBERTO Felipe: Definitely. Yes. I'm going to just use the term light concrete, and also known in the UK as RAAC, R-A-A-C. So this was a type of material very popular from the '50s throughout, I think, mid-80s here in the UK. And at the time, it was identified that its actual lifespan was of 30 years. And we've recently seen a lot of issues, especially in public schools where it's simply collapsed.

To the best of my knowledge in this point, we are not seeing an impact on the professional liability insurance because most of those projects, they are not within the liability period. Companies are not trading anymore so we're not seeing right now a big impact in the market. I think the only space that there is still some exposure is in respect of surveyors doing the works on these schools because approximately 1500 schools have been identified as having these type of material in them.

So it's quite concerning. The public is concerned. And earlier, a few schools, they did not come back for classes because they had to do some work and some more surveying in those properties. So it is a big issue nationwide, but not affecting the professional liability side of things. We did some research and we believe that in the Scandinavian countries, it was also very much used. But again, up until late '80s, no more than that. So already out of scope for the liability period.

MARIA Sanchis: Thank you, Roberto. Let's kind of take a shift and also talk about artificial intelligence, which is everywhere in the media, in the news, and recently impacting our industry as well. How are you seeing the professional liability market in terms of how they're viewing it as an emerging risk?

ROBERTO Felipe: Well, clients started to ask me how their policy would respond in case of any issues that could arise from a failure in the artificial intelligence. And at first, it came as a shock that it was already being used and to the extent that it's being used. And I've discussed with some of the markets that I know how it's being seen. And it's not being talked about that much.

But it's rapidly gaining spotlight with the underwriters as well, because I don't think most of the market realized how much it's already being used in worksites, in design, et cetera, et cetera. The first thing that the market's going to look for is a proper guideline towards the use and all of the exposure that it comes with, right? So here, we can think about reckless use, not having the proper check and second pair of eyes in respect of whatever is generated and used on that type of work.

Also, intellectual property infringement. We know that if we're talking about Chatbox and an indiscriminate use of artificial intelligence from chat bots, that can be quite dangerous because it does not give you access to the sources. So that can be problematic for intellectual property infringement. In general, what the market is asking is for a robust policy around the use.

And they are also interested to hear actually how we can mitigate some exposure because it's undeniable that it can also be used to mitigate exposure for the clients, and consequently, to the market as well. So it is a very initial conversation, but I think it's going to escalate quite quickly as well.

MARIA Sanchis: So there's also positive aspects to the use of artificial intelligence. I see. What about you, Cynthia? What are you seeing in North America in terms of spotlight? And is there any recent losses or maybe examples?

CYNTHIA OLINGER: Sure. So I agree with everything Roberto said. This definitely is an emerging topic in North America as well. And I would say even beyond artificial intelligence, the use of technology for construction is an emerging topic in general, right? Customers are using technology in ways that they just haven't before. Artificial intelligence is one example of that. We haven't experienced losses that I'm aware of here in North America.

I do think that while technology is being used much more extensively than it has before-- and it hasn't contributed to losses yet. Again, this is an emerging area. I think that nobody in the market really understands the extent to which it's being used and really what the ultimate implications of that could be. And it's something that we're definitely talking about and thinking about and anticipating that we're going to need a market solution for.

MARIA Sanchis: OK. So let's talk about some of the recommendations. And you did mention, Roberto, some recommendations that might help some of these risks that we've just mentioned and addressed earlier. And do you have any advice on how to present these risks to get the best results from the market to bring in more carriers to program, to get more commitment in terms of capacity for especially the most complicated risks?

ROBERTO Felipe: Absolutely. So I think the first and most basic is to have a robust risk management and contract management in place. So we can evidence to underwriters how risk is dealt and is important for our insureds, right? With that-- and it's a common practice in London and I think it's very helpful whenever we do it is to put our clients in front of the underwriters. We often do that on client meetings prior to renewal, maybe midterm as well, in which they can present how they do work.

They present different themes of their companies to come and talk about risk management, contractual management, any issues that they might have, even to discuss open claims, best practices. That's something that we've seen the value. And just creating that relationship between the clients and the market is very important. And it makes it easier also for them to evidence also everything that they put on the paper, right?

So they can say, oh, we have this bid/no-bid process. These are the gateways. These this is the strategy. You can see that on the paper, but then presenting it and saying, OK, from this gateway, it has to go to the CFO. And then you can talk to the CFO. You can talk to the CEO of the company on the rationale and really explain how they are mitigating risk by doing so. And I think the other one that is very important is to have an early engagement with the broker so we can also work-- gathering the right level of information for the market.

MARIA Sanchis: Yeah. I think that overall, after COVID, face-to-face meetings are well-received. And I think the London market is very good on that tradition. But what about in North America where that's a little bit more complicated because of distance and proximity? And also from a common practice, how do you recommend how to best present the risks to the market? Our market's also taking a portfolio view. So would it help if they're also involved in other lines of business within that risk or that specific project?

CYNTHIA OLINGER: Our strategy in North America is a little bit different, but we really view ourselves as an extension of their risk management team, right? And we take a very consultative approach. So it's important not only for us to understand their business at a fundamental level, but for them to also understand what's happening in the insurance market. And that's why something like this podcast is very useful, right? Because when we meet with our clients, we want them to know how to best present themselves to the markets, right?

And like Roberto said, that starts with your internal protocols, right? Before we even talk about insurance, we're talking about what they're doing as a company, how they're managing risk within the company, go/no-go decisions on projects, what are you doing, what kind of projects are you doing, what geographies are you in-- all important for us to understand. And then we understand what are your contracting practices, like Roberto mentioned before.

Before we even start talking about insurance, we want to dig deep and understand what they're doing, how they're managing risk. That helps us present them to the markets in the best possible manner, helps the markets to understand them as a company. And then as I said, we want them to understand the marketplace, too. For example, if you're doing more design build than you were last year, that's going to have an impact on your insurance renewal.

You still will have a renewal. You're probably going to pay a little more. The markets are going to rate that higher for any design you're performing via contract, whether it's in-house or subcontracted. So we want to have an in-depth discussion with the clients so that they understand what to expect and we know how to best present them to the markets.

MARIA Sanchis: Let's talk about access points for North America, Cynthia. Local versus international. Is there enough capacity locally to meet requirements and expectations? And under what circumstances would you approach international and reinsurance capacity?

CYNTHIA OLINGER: Yeah. So that's a good question. And again, we have to distinguish between your corporate program, your annual practice program and projects, right? So we have substantial capacity in the markets for corporate programs. Up to $300 million is available for most risks now. Some types of exposures will fall out of appetite, again, if you're doing substantial for sale, residential, heavy infrastructure-- some energy sectors.

ESG guidelines for some of these carriers, they're not allowed to quote programs if you're not following ESG guidelines. But generally speaking, annual programs-- we have ample capacity. When we get into projects, that gets a lot trickier because in North America, a lot of carriers will not quote projects for a contractor that they don't insure already and that where they don't participate in their program already. So we can experience capacity issues for projects for contractors. And that might be an instance where we need to access international capacity.

MARIA Sanchis: Yeah. I think that that's a global trend in terms of reputation and carrier relationships that need to be robust for certain carriers to consider entering project-specific type programs. What about, Roberto, in terms of international? How are you seeing overall capacity? Is it decreasing, increasing? And what's kind of the market outlook for 2024?

ROBERTO Felipe: I think it's pretty much similar to what Cynthia said. So we've seen an increase in companies being more open for business. But that doesn't necessarily translate automatically into more capacity because they're willing to do more business. They want to do more so, but within their appetite. So depending on the type of risk, it might be more or less challenging to find that capacity. So in those particular cases, it's very important to be able to access international markets.

We're definitely seeing more willingness to do business. But when we get to the point of presenting clients to the markets, they're going to say, OK, but specifically this one, I don't have an appetite because of this, this, and that. And then although they are doing PI and they're giving signs that they want to entertain more of this line of business depending on the specific risk, it's not always what we see.

So that's why it's so important to have this and to have a close relationship, international and with the US markets as well, so we can access capacity where it is and where we can find the solution for our clients. Outlooks for 2024. I think it's pretty much on this line. So we can see more collaboration internationally to try to find the correct solutions for the market. The international market has stabilized, as I'd mentioned before. I think what they want to write is clear to each company, to each market and underwriter. And it's a matter of us finding the correct solutions for our clients.

MARIA Sanchis: And in North America, Cynthia, are you finding also this stabilization? Is there a view of profitability for the line of business of professional liability? And what's your outlook for 2024?

CYNTHIA OLINGER: I'd say our outlook also is stable. New market entrants in the recent past have contributed capacity, contributed to competition. We have some improvements in coverage that we're seeing with some of the new forms that we're getting, which is really nice. Some carriers had tried to restrict some coverages and some limit them in the years past, and that has stabilized as well. Because if someone else is doing it, then it makes it harder for them to pull back on the coverage. So that's really nice.

I'd say we're seeing really high levels of scrutiny around certain types of contract language. And we're also seeing more alternative contract vehicles. So integrated project delivery, IPD, for example is becoming more popular here in North America. And that's presenting some challenges from an underwriting perspective because we have very limited carriers with appetite to write those projects and very limited access to appropriate policy forms. So I think that's another emerging topic, something that I expect to be talking a lot more about in 2024.

MARIA Sanchis: Well thank you, Roberto and Cynthia, for contributing to this episode and for sharing your perspective on such an important topic.

ROBERTO Felipe: Thank you. It's been a pleasure.


MARIA Sanchis: Thank you to everyone who listened, and thank you for joining WTW Construction Blueprint podcast. We'll talk to you on the next one.

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Podcast host

Maria Sanchis
Global Head of Construction Broking

Maria serves as the Global Construction Broking Leader and in her role, she is responsible for coordinating WTW’s global construction broking efforts and resources across all product lines and coverages. Maria has over 20 years of industry experience holding senior roles across our major geographies, including Spain, London, Latin America and Miami in the retail and wholesale space. In more recent years, Maria was the Construction Regional Leader for Latin America and part of the Global Executive team supporting our Western European team.

Podcast guests

Client Management Director

Roberto has over 15 years’ experience in the Professional Liability insurance market in Latin America, Continental Europe and in the UK. Roberto has a long trajectory as a Construction Professional Indemnity underwriter, serving as Regional and Global Practice Leader for a renowned insurance company. Roberto joined WTW as a Client Management Director on the Construction Professional Indemnity team in London. The team is exclusively focused on Design Consultants, Design Build Contractors and Project Owners with a bias towards large and complex Professional Indemnity insurance placements for global contractors and consultants.

Cynthia Olinger
North American Construction Professional Liability Practice Leader

Cynthia is North American Construction Professional Liability Practice Leader and in her role she is responsible for the Construction Professional Liability Broking Team, where she sets the strategic direction for broking while building and strengthening relationships with clients and insurance company underwriters and leaders. Cynthia joined WTW Construction in 2022, bringing over 20 years of insurance experience, with 18 years focusing directly on construction professional liability insurance for the construction industry.

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