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Survey Report

Insurance Marketplace Realities 2023 Spring Update – Construction

April 28, 2023

Although rate decreases on renewals are still rare, we are experiencing positive trends in renewal pricing for contractors that we expect to persist throughout 2023.
Rate predictions: Construction
Trend Range
General liability Increase (Purple triangle pointing up) +5% to +10%
Auto liability and physical damage Increase (Purple triangle pointing up) +5% to +15%
Workers compensation Increase (Purple triangle pointing up) Flat to +5%
Umbrella (lead) Increase (Purple triangle pointing up) +5 to +15%
Excess Increase (Purple triangle pointing up) +5% to +20%
Non high hazard NATCAT project builder’s risk Increase (Purple triangle pointing up) +5% to +15%
High hazard NATCAT project builder’s risk Increase (Purple triangle pointing up) +25%
Master builders risk/contractors block programs (renewable business) Increase (Purple triangle pointing up) +10% to +20%
Professional liability Increase (Purple triangle pointing up) Flat to +10%
Contractors pollution liability Increase (Purple triangle pointing up) +5% to +10%
Project-specific/controlled insurance programs Increase (Purple triangle pointing up) +5% to +10%; +10% to +30% for excess
Subcontractor default insurance Increase (Purple triangle pointing up) Flat to +10%

Interest rate hikes have drawn additional investment to the insurance industry.

  • Interest rates and insurance are correlated, meaning changes in interest rates can impact the profitability in the insurance marketplace depending on the specific circumstances and context.
  • Insurance companies invest their collected premium to produce additional investment income which can be used to pay claims and expenses. Due to regulated investing requirements, insurance companies make substantial investments in such fixed-income securities as bonds and treasury notes. There is also the issue of bond premiums having an inverse relationship with interest rates, so if an insurance company needs to liquidate their bonds the yield could be reduced.
  • In contrast, reinvestment risk is introduced when interest rates rise. Insurers that have previously invested premiums in low-yielding, fixed-income securities may be missing additional profitability on higher-yielding securities while they wait for their current assets to mature. As a result, insurance companies’ investment income may be deferred so premium savings may not be immediately realized.
  • Interest rates also have an impact on the calculation used to model the value of future claim payments. Reserve amounts calculated at present value are lower when interest rates are higher, resulting in lower reserve requirements and additional profit for insurance companies.

Renewal outcomes continue to trend in a positive direction.

  • Capacity is coming back into the marketplace both from established carriers and new capital. This increase in supply is driving a modest market improvement. The umbrella/excess market is closing in on $1 billion in capacity; up from historic lows below $700 million in 2021.
  • Contractors continue to experience a two-tier market in which best-in-class risks receive favorable renewal results that outperform the average construction risk. However, the second-tier contractor renewal results can be less predictable and disproportionately inflate average renewal results for the construction industry.
  • Although there is greater capacity in the market, particularly for well-performing insureds, incumbent partners are often willing to make compromises on pricing and terms to retain valuable clients and deter a marketing effort.
    • Familiarity plays a lead role in underwriting flexibility when analyzing insureds’ exposures. Therefore, incumbents have an advantage in retaining long-term clients.

Many of the driving factors that preceded the hard market remain.

  • Nuclear verdicts brought on by social inflation are becoming more common. Additionally, a recent study by the Institute for Legal Reform found that over the last decade, the median nuclear verdict in the U.S. increased by 27.5%, greatly outpacing inflation.
  • While the median verdict is $20 million, the average verdict is much higher at $76 million due to outsized mega nuclear verdicts becoming increasingly severe (WTW’s Q4 2022 State of the Market).
    • A report in the Wall Street Journal noted a 300% rise in the frequency of verdicts $20 million or more in 2019 from the annual average from 2001 to 2010.
  • According to WTW’s Q4 2022 State of the Market, 71% of millennials feel that big corporations put profits ahead of safety and should be punished accordingly.
  • A rise in wealth disparity has seen attorneys and juries in geographies with prevalent income inequality award higher verdicts by pursuing the deepest available pockets in an incident.
  • Attorneys continue to aggressively pursue lawsuits, sometimes funded by third parties. These plaintiff attorneys are also getting better at presenting quantifiable damage models that are more challenging to counter.
    • Courts are still working through their mounting backlogs on the heels of the COVID-19 pandemic.
    • There is fear that a large quantity of nuclear verdicts could still be on the horizon from incidents that took place over the last several years.
  • 2022’s industry combined ratio is forecasted to be 100.6%, up from 2021’s 99.6%.

Mixed results are expected for construction activity for 2023 as investments become more selective.

  • There is concern that macroeconomic factors such as rising interest rates and an overall decrease in consumer confidence could impact construction starts. However, each project will be impacted by microeconomic factors and may not follow the general trend.
  • Infrastructure bill spending is expected to gradually “hit the street” in the second half of 2023. Civil contractors anticipate increased project opportunities to end the year and kick off 2024. Actual rollout plans of bill are still forthcoming making some contractors uncomfortable.
  • Non-residential construction is expected to slow down as contractors catch up to their backlogs that were delayed by COVID-19.
  • A rise in interest rates is also slowing residential starts and closings, leading more residential homebuilders to consider layoffs as former buyers choose to walk away from their down deposits.
  • While the projects themselves are larger in scale, much of the higher contract values are being driven by significant increases in both labor and material costs. We anticipate this trend to continue throughout 2023. According to WTW’s 2022 Q3 Rate Tracker, contract values have increased approximately 30% year over year.

Reinsurance renewals will greatly impact the outcomes and timelines for contractors’ renewals in 2023.

  • Despite reinsurers benefitting from multiple years of compounded price increases, concerns regarding inflation and reserve adequacy during soft market periods will lead to another year of increases in 2023.
  • Reinsurance markets are cautious given challenges with financial market volatility and geopolitical tension.
  • Increased scrutiny of individual risks has made achievement of consistent renewal outcomes difficult. It is becoming less common that contractors will receive the exact terms and conditions that were offered in the expiring year.
    • The need for underwriter referral has been amplified, causing delays in the renewal process.
    • It is important to give adequate lead time during renewals, especially when introducing new markets to an insured.

General liability (GL)

The labor shortage and supply chain delays have greatly impacted contractors not only in their ability to complete jobs on time, but by artificially inflating exposures with increased payrolls and by pressuring contractors to find alternative building materials, which could give rise to additional claims.

  • Labor shortage issues persist throughout the construction industry regardless of sector. Contractors are challenged to find adequate skilled labor to perform necessary duties on their jobsite. This can lead to defect claims if work is not done to spec in an attempt to meet strict deadlines.
  • Labor shortages and deadlines aren’t the only pressures facing contractors. Margins continue to be squeezed as material costs fluctuate, exacerbated by supply chain deviations and delays.
    • As a result, contractors have had to look for alternative materials and suppliers potentially opening them up to defect claims if the material is of inferior quality.
  • Another impact of the labor shortage is that contractors need to offer more competitive wages to find both skilled and unskilled workers. Payroll estimates, which are a main exposure base for contractors GL, are seeing growth year over year which impacts total GL premium spend despite the same scope of work being contemplated.
    • Another GL exposure base, subcontracted costs, has also increased for similar reasons.
    • It is unclear whether increased payroll or subcontracted costs represent true additional exposure to the insured, which could be a point of negotiation during renewal.
  • High hazard risks (second-tier) routinely experience limited market offerings and flexibility. These risks include street and road, residential, roofing and NY operations among several others. Contractors with a challenging loss history can also find themselves in this second tier.
    • Contractors will need to display a clear commitment to safety and distinguish themselves as best-in-class risks to bring additional markets to the table.
  • These contractors with best-in-class reputations can draw further interest from the market, leading underwriters to compete on pricing, coverage and service offerings to win business.
  • As the trend of increased underwriting scrutiny continues, organized and complete submission data is paramount to keeping the renewal timeline on track. Referral underwriting has increased as reinsurance treaties have changed, and underwriting guidelines are regularly revisited.
    • This calls for additional lead time on all submissions, which can also give underwriters time to apply various credits if available.
  • Working closely with carriers throughout the year can pay dividends at renewal; particularly a carrier’s risk control engineering team as they are impactful on the underwriter’s impression of the contractor’s risk management program and strategy.

Auto liability (AL)

While rate increases have started to moderate, the auto market continues to suffer from adverse loss experience. Auto accidents are one of the main contributors to nuclear verdicts that often make headlines.

  • Auto fatalities are a frequent driver of the nuclear verdicts that typically occupy headlines.
    • The National Highway Traffic Safety Administration (NHTSA) projects that an estimated 42,915 people died in motor vehicle traffic crashes in 2021 or an increase of 10 percent from 2020. This is the highest number of fatalities since 2005, and the highest annual percentage increase in the Fatality Analysis Reporting System’s history (WTW’s Q4 2022 State of the Casualty Market).
  • As the age gap in the construction work force heightens, contractors are being forced to bring on younger and less experienced drivers to keep pace with demand. Having less experienced drivers on the road has led to some insurers looking at limiting coverage to these newer drivers or in some cases charging additional premium.
  • The implementation of telematics, specifically the recently introduced cab-facing cameras, can play a key role in auto premium pricing. Contractors that have invested in these technologies have realized increased credits and pricing relief for adopting these added safety measures.
  • Fleet size and makeup will continue to be heavily scrutinized by underwriters.
    • More cars on the road have a direct correlation to loss frequency, making fleet size a sticking point for many carriers. The number of units in a fleet can also play a significant role in umbrella attachment points and subsequent excess tower pricing.
    • The fleet makeup will also impact market appetite and pricing. Fleets with a large volume of heavy/extra heavy trucks are seeing reduced interest and higher rate increases compared to similarly sized fleets of PPT/light trucks.
  • Supply chain issues as well as cost of materials have had a direct impact on auto liability as the cost to replace auto vehicles and parts continues to rise. A “fender bender” in today’s world requires not only the replacement of vehicle bumpers but also the many sensors/cameras built into those bumpers.
    • Repair times for vehicles have increased as well, leading to extended costs for rentals and overall loss of use.
  • Looking ahead as vehicle-to-vehicle (V2V) communication capabilities develop, the ability to wirelessly exchange information about the speed and position of surrounding vehicles shows great promise in helping to avoid crashes along with environmental benefits.

Workers compensation (WC)

Workers compensation has been the most consistent and predictable line of business for most contractors. Contractors that display a strong safety culture with positive loss history have been able to achieve advantageous renewal results. This can also relieve some of the pressure on other lines of business during renewal.

  • Labor shortage issues persist throughout the construction industry regardless of sector. Contractors are pressured to lower hiring standards to acquire and retain unskilled workers specifically.
    • To keep up with demand, contractors have needed to hire younger and less-qualified labor. This could result in increased claim frequency and severity. Risk engineering calls have become the new norm during a marketing effort with underwriters keen to review contractors’ health and safety plans.
  • Medical cost inflation and comorbidities have been a recurring driver of workers compensation costs, but they are being partially offset by a decrease in the cost of prescription drugs.
    • Payroll increases within construction have also increased overall exposure and subsequently premium.
    • Lost wages are a component of claim costs, which have been exaggerated in the current economy. As a result, contractors with a robust return-to-work program have received more favorable results from underwriters.
  • The use of job monitoring technology is becoming commonplace and proving effective when employed correctly.
  • Senior management buy-in is essential in the implementation of new technologies to overcome the natural aversion to change.
  • As a line of business, workers compensation boasts the lowest combined ratio of any casualty line at 87% for private carriers in 2021 (Q4 2022 State of the Casualty Market), making it a stabilizing force during renewals when the GL and AL are placed with the same carrier.
    • According to Fitch, the 2022 combined ratio is expected to increase to 92% from the flat combined ratios we have experienced the past few years.

Umbrella/excess liability

Additional capacity has reemerged in the excess market after years of compounding increases have made the market a more enticing environment to compete for business.

  • The umbrella marketplace is still largely made up of primary markets that can offer lead capacity. Often, the lead umbrella/excess pricing can dictate what carrier is most competitive in a marketing process.
    • There has been a trend with primary underwriters being granted the authority to offer their own lead umbrellas as opposed to being beholden to a separate internal underwriting division.
    • Although the market is still very slim, there is growing interest in unsupported lead umbrellas now that umbrella rates have experienced significant growth in the last few renewal cycles.
  • With further market competition, there has been a return to rate relativity pricing rather than “rogue pricing” where excess layers dictate their own renewal needs versus following the underlying layer.
  • Increasing attachment points have profound impacts on the excess tower pricing. For example, a risk with a $2 million CSL on AL versus a $1 million CSL gives excess underwriters more comfort in lower layers, leading to overall premium savings when subsequent layers are focused on layer relativity. There is also more market capacity available at higher attachment points in general.
    • Increasing attachment points can also force underwriters to take another look at their rating rather than offering renewal terms based on last year’s pricing.
  • The London and Bermuda markets have become increasingly more price-competitive at historically lower attachment points.
  • Contractors who operate in challenged industries or have perceived high hazard exposures — including PFAS, wildfire, residential and New York operations — are experiencing higher rate increases, capacity challenges, and are often forced to take on higher retentions and reduced coverage (WTW’s Global Construction Rate Trend Report Q1 March 2023).
  • Umbrella and excess liability rates overall continued to improve; however, Q4 was influenced by clients in the second exposure tier (two-tier risk). Q4 2022 yielded an average rate lift of +6.1% for lead umbrella and +3.9% for excess liability programs, an increase over Q3 2022’s umbrella and excess liability renewal results of 1.0% and -4.4% respectively.
  • Certain coverage limitations, such as PFAS, biometric and communicable disease exclusions, are being encouraged at a higher rate. Excess of wrap restrictions and anti-stacking limitations have also persisted.

Controlled insurance programs (CIPs)

The scale and cadence of new construction projects begun in 2022 have continued through the beginning of 2023, suggesting that even though some forecasts are predicting an economic downturn this year, we are not expecting a recession in the building industry any time soon. In step with this thought, carriers remain focused on creating long-term partnerships in support of project-specific programs.

Project values are escalating.

  • While supply chains are returning to a more normal state, we expect that it will take time to completely rebound. Materials and hard construction cost will be affected differently based on a project’s location, but all signs point toward higher building costs in 2023 over 2022.
  • Project/property valuation due to inflation continues to be a factor in CV as interest rates continue to rise. This is resulting in increasing loss estimates and requires new depths of underwriting analysis to properly price an exposure.
  • The residual cost increase of materials is driving premiums up even while achieving a competitive rate.

Markets are invested in providing best-in-class project coverage.

  • Direct carriers are beginning to broaden capacity and deductible options to created long-term partnerships in support of project-specific programs and show more creativity and flexibility when the insured desires the same.
  • Construction clients are benefiting from the market competitiveness that continues to be a theme. Start the project placement process as early as possible because every player in the process from the primary insurers through each excess insurer will need more time to finalize their pricing and terms as brokers have more flexibility in the marketplace to negotiate optimal pricing.
  • Loss control calls with the markets before CIP placement afford carriers more comfort as the client can accordingly answer questions and demonstrate risk management strategies at the sponsor level, proving the transparency and comfort for the carrier to trust in the partnership of insured and insurer.
  • Excess carriers remain reluctant to deploy a full $25 million in limit resulting in multiple quota-share layers for large-limit towers. However, excess markets are becoming more likely to follow terms and conditions of the underlying layers, showing signs of removal of COVID-related exclusions and endorsements that had become the new normal. In addition, new capacity continues to come into the market providing more alternatives as the rate levels attract new investments.

Projects are beginning to close out.

  • Finally, since the onset of COVID-19, we are beginning to see some of the long-haul projects come to completion.
  • Expect cost of materials and inflation over the project term to cause increased total values over initial estimates, resulting in additional premium due at closeout. The same holds true for project rates based on payroll, given the higher cost of labor as well.
  • For those projects still to be completed, extensions remain extremely difficult to secure at original program pricing and are highly dependent on project experience as well as on remaining work scope and location. If an extension is a known need, it is best to begin the process as soon as possible.

A small percentage of difficult classes still require more particular marketing efforts.

  • With the exception of a limited number of direct insurers, frame, residential and single-family build-to-rent portfolios are still only being supported in the E&S marketplace.
  • There are still problematic jurisdictions that continue to force for-rent, commercial-grade projects into the E&S marketplace regardless of construction type. For these placements we are seeing higher rates on both primary and lead, as most carriers consider the lead excess to be a working layer.

New York controlled insurance programs (CIPs)

Insurance carriers continue to shy away from New York CIPs with a limited number of carriers offering up programs with a structure that contains little to no GL risk transfer.

Limited primary market options

  • Primary GL limits of 5/10/10 are required in most cases to obtain excess attachment.
  • Most programs are structured with GL retentions of $3 million to $5 million.
  • The GL-only CIP market in NY is nearly nonexistent.

Excess market remains challenging.

  • Excess carriers require a minimum of $5 million attachment point.
  • Very few markets are willing to attach within the first $10 million of limits.
  • Carriers are only willing to put up short limits ($5 million) within the first $25 million of coverage.

NY Labor Law 240(1) continues to take its toll on overall loss experience.

  • Carrier claim data reflects increases in frequency and severity over the past few years.
  • Average settlement value of claims involving NY Labor Law 240 (1) is $1 million to $3 million.
  • Alternative dispute resolution has been employed for a NYC project for the first time in many years. The use of ADR on a major upstate project started a few years ago and resulted in reductions in frequency and severity of labor law claims.

Builders risk

The builders risk market has become more challenging of late. With recent industry loss events, including numerous NAT CAT events in 2022, tightening of market conditions and rate increases for all construction types are to be expected. Highly CAT-exposed projects continue to be met with increased underwriter scrutiny, driving increased premiums.

The builders risk market generally has sufficient capacity, although this capacity can be restricted based on location/CAT exposure, project size and type of construction. Projects that involve innovative technologies, alternative construction methods or materials (such as modular or CLT) and those exposed to natural disasters may encounter resistance from the marketplace and be subject to more stringent terms and conditions.

  • Limited underwriter bandwidth and increased underwriting discipline require longer lead times to quote. Providing comprehensive and accurate underwriting information is essential to obtaining competitive quotes. Insurance carriers seek to collaborate with clients who can showcase exceptional risk management practices, emphasizing best-in-class supply chain efficiencies and on-site safety measures.
  • Carriers will continue to navigate difficult treaty renewals this year. Individual company appetite should be closely monitored.
  • Coverage drivers:
    • Water damage and water intrusion — Water damage losses continue to be a major loss driver and a challenge to the market. Increased water damage deductibles can be anticipated, especially on high-rise, residential and wood frame projects. Lower water intrusion sub-limits may be imposed on wood frame projects.
    • High CAT-exposed projects remain challenging with rates and deductibles continuing to rise. Carriers are looking to correct market pricing to achieve technical adequacy for pricing related to catastrophic events.
      • Damage from hail/tornado/convective storm — Many carriers are pushing for higher deductibles in hail/tornado/convective storm-exposed areas. Mostly in the Midwest and South, we are seeing larger deductibles on both master policies and individual project policies.
      • Delay-in-completion coverage requests for CAT-exposed projects continue to be analyzed closely by carriers, particularly in higher exposure zones. We anticipate a potential for larger waiting period deductibles for CAT perils, depending on the opportunity.
    • LEG 3 — If and when such wording structure is offered, higher rates and/or deductibles typically apply. Carriers may impose serial loss clauses and/or sublimits applicable to LEG 3.
    • Structural renovations and damage to existing property — Underwriting appetite is quite limited on renovation projects that include structural elements. It continues to limit carrier involvement and willingness to cover the existing building value. In cases where existing property coverage is being requested and/or there are structural components in the project scope, detailed underwriting questions and requests can be expected, such as structural engineering reports, building appraisals, existing condition reports, etc.
    • There is growing concern in the marketplace around proper valuation and adequacy of the original policy limit due to supply chain challenges and inflation pressures. Carriers are reluctant to offer significant increases to escalation clauses to this point. The market is dynamic and moving swiftly; therefore, original budgets should be revisited throughout the project life cycle and the limits of liability adjusted as needed.

Project extensions are becoming more difficult to obtain across the industry.

  • Increased rates and deductibles, in addition to possible restrictions in coverage, can still be anticipated on extensions beyond pre-agreed policy terms. Projects with losses, heavily cat-exposed locations or opportunities backed by reinsurance support should expect more severe restrictions and corrections in rate and overall terms.
  • Early engagement with the carriers when an extension is needed remains critical, as well as providing detailed project status information along with ongoing protections in place at the project site.

The wood frame market continues to be extremely challenging, with finite capacity causing rates to rise.

  • Large-scale developments/projects are becoming more common. As direct carrier appetite and capacity are limited, the need for multiple carriers on a single risk can lead to premium increases and possible non-concurrent terms and conditions. Many times, London or wholesale/E&S market capacity participation can be expected to complete programs. This is especially true in high CAT exposed areas.
  • Adequate lead time for wood frame submissions as well as complete underwriting details is critical — quote turnaround times can take weeks to months depending on project size and complexity.
  • Coverage drivers:
    • Site security is a requirement for most large wood frame construction. Risk managers and contractors should look at site security as part of the all-in construction cost instead of an additional cost. Electronic service monitoring can be costly, depending on the scope of work and length of the project. Engaging vendors early will assist in estimating costs.
    • Water detection service implementation on wood frame projects is encouraged. While not always a requirement, it does help separate a project from others and increase carrier appetite.
    • Crime scores are closely monitored on all projects, as civil unrest, riots, arson and looting in certain geographies have proven challenging to underwrite. Buyers should anticipate higher rates and even stricter security requirements in these locations.
    • Wildfires continue to be front of mind for underwriters, and wildfire deductibles or restrictions may appear on new placements.
    • Frame renovation capacity is very limited. There is a finite number of carriers willing to participate on these exposures, and insureds should expect to see loss limits and high rates for this exposure. Delay in completion coverage may be difficult to obtain, and existing building coverage is mostly excluded.

Professional liability

The construction professional liability market remains relatively competitive, although increased underwriting scrutiny continues, with carriers careful about capacity deployment and retention levels.

  • While some insurers have reduced limits on specific coverage parts or on an overall book portfolio basis, the marketplace continues to see many insurers offer at least $10 million per risk to insureds, with others able to offer up to $25 million.
  • Total global market capacity for contractor’s professional annual practice programs is estimated to be between $350 million to $400 million, while project-specific placement estimate is reduced to $250 million, because many insurers have reserved this capacity for practice or annual clients.

First-party coverages (including rectification and protective indemnity) can vary greatly from insurer to insurer.

  • Insurers are underwriting each risk on a case-by-case basis with a focus on upstream and downstream contractual controls and designer prequalification.
  • Depending on a project’s delivery method, we are now seeing requests for a percentage of design completion greater than 30%, and a push for no limitations of liability in designers’ subcontracts with the insured.

Many markets are reserving project-specific capacity exclusively for clients who procure annual business.

  • Total policy term terms (policy period plus extended reporting period) of 15 years are widely available, although some insurers are starting to limit extended reporting periods to applicable projects’ state statute of repose or contractual requirement, whichever is less.
  • Design professionals in the architects and engineers industry have seen project capacity leave their marketplace, thereby rendering these placements more difficult to secure on large project placements, especially on design/build infrastructure projects.
  • Reduced available capacity for design professionals has adversely affected contractual negotiations that design/build contractors have with owners. This, coupled with the push for limitations of liability from design professionals, is in turn making contractor-purchased project placements more expensive and leading owners to consider procuring owner’s protective indemnity.

Contractors pollution liability

  • Clients who previously benefitted from longer-term site pollution or contractors pollution project policies with five- or 10-year terms placed at comparatively lower rates are now contending with effective rate increases as they face higher rates in the current renewal environment.
  • Carriers are looking to achieve effective rate increases commensurate with their loss experience and appetite across their renewal books by using underwriting methods, such as premium increases, shorter policy terms and reduced capacity.
  • Contractors pollution liability programs continue to experience rate increases largely due to the market-wide performance of site pollution products, but these increases are kept in check (+5% to +10%) by markets competing for this desirable line of business.
  • Site pollution continues to experience higher rate increases (+5% to +15%) resulting from increased claim activity, remediation costs (fuel and labor), and regulatory uncertainty from emerging exposures (i.e., PFAS).
  • Combined environmental + casualty/professional/excess programs have experienced a modest reduction (+5% to +15%) in their rate increases, keeping in line with the slight softening of the casualty market.

Exposure spotlight

  • PFAS: As predicted, per- and polyfluoroalkyl substances (PFAS) exposures are being faced by standard lines insurance markets for all lines of coverage, including property and products liability. As environmental regulators are considering the classification of these chemicals as hazardous substances, researchers are racing to develop potential remedial solutions. Meanwhile, carriers are all but eliminating coverage for PFAS onsite pollution (and increasingly on contractors pollution) programs because of increased activity from environmental regulators and third-party lawsuits.
  • ESG (environmental, social and governance): ESG principles may begin to factor into certain contractor sectors and aspects of projects, including project site waste management, as well as natural resource consumption and conservation.
  • IAQ (indoor air quality): IAQ coverage for mold and Legionella has become more difficult to secure and is increasingly subject to sublimits, higher retentions and per-bed/door retentions for the healthcare and residential real estate sectors.
  • Redevelopment: Claim activity related to redevelopment of brownfield properties continues — although carriers try to limit exposure by adding exclusions or coverage restrictions associated with soil management, historic fill, dewatering and voluntary site investigations.
  • Stormwater: We are also seeing increased contractors pollution and professional liability claim activity relating to excessive siltation and stormwater run-off from construction sites, with claims brought by project owners, citizen action groups and regulatory agencies.

Subcontractor default insurance (SDI)

SDI carriers continue to add capacity in anticipation of continued growth in demand into 2023 and beyond. Subcontractor financial conditions continue to be impacted by inflationary pressure on materials and labor. As such, subcontractor risk remains a top concern for most contractors, owners and developers. SDI usage continues to grow at a fast pace as firms are looking to the comprehensive coverage provided by SDI programs to ensure operations and projects are protected against subcontractor default.

  • The SDI marketplace now has eight carriers, including six that we consider actively engaged in the product line. Single limits can now be offered at $50 million or greater per loss.
  • Carriers continue to offer flexibility for annual and multiyear programs and on subcontractor enrollment amounts, which is opening SDI programs for small, mid- and larger-sized contractors.
  • With the introduction of new capacity and choice, buyers should review current policy terms, conditions and pricing.
  • Claims and claim notices continue to grow in the SDI market — with loss multipliers and ground up magnitudes continuing to see an increase.
  • Underwriting in the current environment will continue to present challenges. SDI carriers are critical of contractors who are altogether new to SDI, and virtual underwriting meetings may not be sufficient to build trust. Carriers are open to travel for in-person underwriting and risk engineering visits, which is driving more concrete relationships.
  • For the near term, contractors will have to contend with inflation, material and supply uncertainty and ongoing qualified labor constraints. We expect contractors to consider a balance of SDI and subcontractor bonds to get through this period of growth and uncertainty.
  • Despite current uncertainties, the SDI marketplace is robust. Markets are responding responsibly with some adjustments to their program offerings. In addition to the overall increase in market capacity, the entrance of a new carrier in 2022, which is offering significant limits, without legacy exposure, provides an additional option for both the near and long term.
  • The WTW DIG Center of Excellence continues to offer both general market and individual client educational sessions on SDI and how trends in the market are affecting operational success.


Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. 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 advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).


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