Insurers are turning to facultative insurance to capitalize on increased construction activity globally while addressing volatile catastrophe and other exposures. This strategy can help them take advantage of opportunities to grow their construction book and increase their speed to market.
But with facultative reinsurance market conditions for construction risks shifting, how can insurers secure more certain and better-value capacity?
Calling on perspectives from our latest Global Facultative Reinsurance Report, this article aims to support insurers ceding construction risks into facultative markets now and into a period of potentially even greater demand. Below, we help you understand the forces shaping construction risk and reinsurance markets and give practical insights on achieving better value.
Our latest report features findings from surveying 300 senior decision-makers in leading property and casualty insurance companies across the world with gross written premium (GWP) of $1 billion or more. Nearly 40% of these respondents indicated they were purchasing facultative reinsurance for construction; that figure rising to nearly 50% among respondents from Asia-Pacific and Latin America geographies.
At Willis, we’re seeing an uptick in facultative demand related to energy and construction, as well as spot facultative bought for problem locations within large portfolios in some regions.
Demand for facultative is also being driven by growing demand to build data centers and the corresponding power infrastructure, fueled by the increasingly widespread application of AI. We've also seen some large-scale renewable energy and liquefied natural gas projects struggling to find adequate treaty capacity and therefore turning to facultative solutions.
As geopolitical tensions potentially ease across Europe and the Middle East, we may see more insurers looking to grow their construction books, leading to more insurers ceding facultative reinsurance to capitalize on this potential.
The construction reinsurance market is currently a mix of hardening and softening trends. While some areas are beginning to see a softening, the market remains challenging, particularly for high-value and specialized risks.
We are, however, seeing some insurers becoming more competitive, with many trying to secure lead positions or larger lines to strengthen their market presence.
If you’re looking to cede construction risks, you can look to leverage such competition to your advantage, something that’s more achievable with strong submissions, more on which, outlined below.
The facultative market for construction risks has been impacted by increased claims activity, reduced capital availability and volatile global economic conditions. By sharing analytical insight on how these trends are impacting the construction risks you wish to cede, you can more effectively position risks and aim for enhanced outcomes.
Data analytics is key to managing natural catastrophe exposures in particular. Advanced data analytics can help you understand the true risk profile of projects, including potential worst-case scenarios.
Getting a refined and comprehensive view of construction project risks – using the latest scientific models and calling on large data sets to project probable maximum loss across the entire construction schedule, for example – can give you a clearer perspective on how construction risks should be priced. Securing the right data, analytics, expertise, and experience will help you achieve the best results when purchasing facultative reinsurance.
Analytical insights can also help your insurer manage your overall portfolio of construction risks more efficiently.
When you have a pipeline of upcoming projects or are targeting a specific project to lead, engaging specialist facultative insurance brokerage teams early in the underwriting process can give you valuable analytical insights and increase your speed to market.
This kind of early engagement positions you ahead of potential concerns, clauses, or wordings you’ll need to consider. This can help reinsurance underwriters make decisions faster, giving you the capacity to meet demand ahead of your peers.
The quality and thoroughness of your facultative reinsurance submissions for construction risks is crucial in determining whether it’s quoted or declined.
Below is a comprehensive, though not exhaustive, checklist for the essential information you need to supply for a complete facultative reinsurance submission.
By checking you’ve supplied this, you can help ensure your submission is positioned towards the top of the underwriting pile and improve your speed to market.
You should check your submission includes details on the following:
Your speed to market to grow your construction business may also depend on getting the right support for ceding to facultative markets.
When evaluating support, it’s worth assessing how well-equipped an external brokerage team is to understanding appropriate coverage, terms, deductibles, and pricing for a new, large or specialized risk.
Your facultative broker should, for example, be able to give you early indications of certain clauses or wordings you would need to consider. They should also be able to provide feedback on what’s realistically attainable in the current reinsurance marketplace. Can they advise on the likely capacity for certain risks and alternative solutions if what you need isn’t viable in the current market?
Our Facultative and Structured Risk team can help cedents achieve their growth ambitions through specialist submissions and advocacy, access to global reinsurance markets, and a consultative approach to reinsurance. To better identify the optimum balance of retention and risk transfer, get in touch with our specialists.
