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Survey Report

Insurance Marketplace Realities 2024 – Construction

November 9, 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.
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Rate predictions: Construction
Trend Range
General liability Increase, (Purple arrows pointing up) +5% to +10%
Auto liability and physical damage Increase, (Purple arrows pointing up) +5% to +15%
Workers compensation Neutral increase (Flat line, Purple arrows pointing up) Flat to +5%
Umbrella (lead) Increase, (Purple arrows pointing up) +5 to +15%
Excess Increase, (Purple arrows pointing up) +5% to +20%
Non high hazard NATCAT project builders risk Increase, (Purple arrows pointing up) +5% to +10%
High hazard NATCAT project builders risk Increase, (Purple arrows pointing up) +25%
Maters builders risk/contractors block program (renewable business) Increase, (Purple arrows pointing up) +10% to +20%
Professional liability Neutral increase (Flat line, Purple arrows pointing up) Flat to +5%
Contractors pollution liability Increase, (Purple arrows pointing up) +5% to +10%
Subcontractor default insurance Neutral increase (Flat line, Purple arrows pointing up) Flat to +10%
Project-specific/controlled insurance programs Increase, (Purple arrows pointing up) +5% to +15%, +10% to +30% for excess

Technological advancements in the construction industry have given contractors greater opportunity to control their losses.

  • The growth in popularity of wearable technology, such as GPS trackers and biometric sensors, can contribute to a healthier workforce. While this is not a common requirement for insurers, the data can be used to assess different factors that may give rise to claims. With this information, contractors can take a proactive approach to developing procedures to mitigate losses.
  • Many insureds are beginning to use forward- and inward-facing cameras in their auto fleets. This, along with information from telematic software, can give contractors insights into their employees’ driving behaviors, such as attentiveness, lane departures and speed. This is particularly useful in assessing driving performance and determining fault in any accidents.
  • The development of robotics and advancement in ergonomics have reduced the number of repetitive motion injuries on jobsites.
  • Universalization of digital collaboration software has also given contractors the opportunity to better connect internally, with owners/developers and with their subcontractor partners to design and develop project plans. They can also give more insightful safety training.
  • 3D construction printing is also being further developed and is now capable of constructing larger and more sophisticated buildings. This approach can offer savings for contractors on materials, labor and time.
  • While all these technological advancements are reshaping the way we think about the building process, underwriters still tend to focus on historical data points. As a result, contractors may not receive the appropriate premium credit for adopting new technology. However, the use of this technology can improve loss experience and thus result in better insurance rates in the future.
    • It is also worth noting that being at the forefront of adopting technology in meaningful ways, particularly regarding safety and quality measures, may draw additional interest from the market and increase competition during a marketing effort.

The construction industry is developing a sharper focus on sustainability and reducing its environmental footprint.

  • The 2022 Global Status Report for Buildings and Construction notes that the sector accounts for over 34% of energy demand and 37% of energy and process-related CO2 emissions in 2021.
  • According to the United Nations Environment Programme (UNEP), the construction sector has invested in building energy efficiency at an unprecedented rate, rising 16% from 2020 to 2021 to over $237 billion.
    • Yet, construction growth is outpacing investment in energy efficiency.
  • It appears that one possible scenario is for government to provide both incentive and enforcement of more sustainable operations.
    • As a result, many contractors are analyzing the building materials they use as one way to minimize their carbon footprint.
  • Mass/cross-laminated timber (CLT) is one building material that has seen increased usage in the last few years. This material involves kiln-drying soft woods that are not usually used for building and then gluing them together in perpendicular layers to create a material that has a comparable strength-to-weight ratio to concrete while being about 20% lighter.
    • Manufacturing this type of timber is less carbon-intensive than producing concrete and steel, and the wood stores carbon after it’s manufactured.
    • According to a 2014 study in the Journal of Sustainable Forestry, replacing steel with timber such as CLT could cut CO2 emissions by 15% to 20%.
  • Modular construction is another method that aims to reduce carbon emissions. The Modular Building Institute published an article citing multiple studies that found that modular construction reduces overall weight of waste by 83.2%; it uses about 20% less material overall, and it reduces waste level by about 52%.
  • While these new and sustainable methods seem to garner more media attention, a similar problem for the technological advancements in construction remains for underwriters. The lack of historical loss data can make these methods difficult to underwrite and can also limit the number of markets willing to consider the risk.

Contractors are feeling pressure to defend their bottom lines.

  • While the construction industry is experiencing ample investment, net profits in the industry are slim.
  • Consequently, contractors and their insurance advisors need to be more proactive in developing insurance programs and structures that fit their pipeline efficiently and can give them a better understanding of future insurance costs when submitting bids.
  • Many building material costs have remained above pre-pandemic pricing, which has driven contractors to find more cost-effective alternatives. This can impact the quality assurance of a project depending on the material chosen and the contractor’s experience using that material.

General liability (GL)

New building materials and litigation trends continue to challenge general liability renewals.

  • The growth in the use of new construction materials and processes has created new challenges for actuaries and underwriters.
    • Underwriters, particularly in the retail market, sometimes have less ability to adapt to novel construction materials and processes without ample loss data to support their pricing and coverage terms.
    • They are also often limited by their reinsurance treaties and need to seek facultative reinsurance in certain scenarios, which can be a time-consuming process.
  • Quality submission data presented in an organized manner can greatly affect renewal outcomes.
    • Submission information, such as revenue splits between different types of construction jobs, has been helpful in getting underwriters to understand the exposure and provide competitive terms.
    • Historical project listings that include information participation in wrap-ups (OCIPs and CCIPs), such as effective dates, construction values and program limits, are also often required not only for markets to offer terms but also to keep wrap-up exclusions off the program throughout the ensuing excess tower.
    • Accurate and complete historical loss data going back five to 10 years is also a standard request. For any large losses that appear, it is helpful to supplement those narratives with any lessons learned. Contractors that can tell a positive story and share the measures that were implemented to limit the possibility of a similar loss occurring in the future will be viewed in a more positive light.
  • For general contractors, favorable review of subcontractor prequalification standards and QA/QC procedures is extremely important to maintaining a competitive insurance renewal. For many carriers, the contractor’s reputation can be a determining factor in how aggressive they are on a renewal or in a marketing exercise.
  • The litigation environment in the U.S. continues to evolve in favor of plaintiffs. With the popularization of third-party litigation financing, plaintiff attorneys have become increasingly more organized with conducting discovery and seeking out plaintiffs. This has led to larger and more aggressive class action lawsuits. In construction, this is most often seen in cases involving construction defects.
    • Jury pool desensitization is also a recurring issue that often leads to exorbitant verdicts largely from punitive damage awards.

Auto liability (AL)

Auto liability continues to be a significant contributor to nuclear verdicts; however, insureds have experienced more moderate renewals after compounding years of rate increases and structure changes.

  • Auto fatalities are a frequent driver of the nuclear verdicts that typically occupy headlines. Despite the severity of these accidents, the frequency of fatalities appears to be declining.
    • The estimated fatality rate for the first three months of 2023 decreased to 1.24 fatalities per 100 million vehicle miles traveled, down from the projected rate of 1.32 during the same time in 2022 (WTW’s Q2 2023 State of the Casualty Market).
    • This decrease occurred alongside a 2.6% increase in vehicle miles traveled.
  • Insureds have continued to increase their primary auto limits. In Q2 of 2023, the average combined single limit (CSL) was $2.1 million (WTW’s Q2 2023 State of the Casualty Market).
    • The percent of oval programs with a minimum $5 million CSL has increased 36% compared to Q2 2022.
  • The implementation of telematics and the recently introduced cab-facing cameras can play a key role in auto premium pricing. Contractors that have invested in these technologies are seen as best-in-class and often have increased competition during a marketing effort.
    • Underwriters are slowly providing premium credits/rate relief to contractors taking proactive measures such as these while additional data points on their effectiveness become available.
  • Fleet size and makeup will continue to be heavily scrutinized by underwriters.
    • One area that has seen additional underwriting scrutiny is a contractor’s hired/non-owned auto (HNOA) exposure. HNOA is a standard auto coverage that is included on most contractors’ policies. It is intended to provide excess auto liability coverage over an employee’s personal auto policy when an accident occurs while using a personal or rented auto during their course of employment.
    • With an increase in nuclear verdicts arising from auto claims, insurers are now keener to underwrite to specifics in a contractor’s fleet policy, e.g., the personal auto limit requirements of their employees and when using a personal or rental vehicle is permissible. They will also factor in the number of drivers and miles driven.
  • Workers compensation (WC)

Workers compensation remains a stable line of business for most contractors, which can serve as an anchoring point for the rest of the casualty program.

  • Workers compensation continues to be one of the most stable lines of business during renewals from a market condition standpoint.
    • According to WTW’s Q2 State of the Casualty Market, 2022 marked the ninth consecutive year of underwriting gain.
  • There is some pressure on WC rates resulting from the rising cost of medical care.
    • Between 2012 and 2021, countrywide WC medical costs increased at 2% per year. For 2022, CMS actuary projects the PHC to run higher at 3.7% — and beyond 2022, in the range of 2.5% to 3%.
  • The labor shortage is a recurring trend in construction. Contractors are under pressure to hire inexperienced workers to keep up with building demands. As a result, hiring and training standards can sometimes be done in a more hurried manner.
    • According to Travelers’ 2023 Injury Impact Report, 47% of all construction injuries were to first-year employees.
    • Due to the inherent dangers of a construction jobsite, such as heavy equipment usage and working around unfinished structures that may lack proper safeguards, construction WC claims are also some of the most expensive of any industry. Travelers notes that construction injuries tend to be more severe and keep workers off the jobsite for longer periods, resulting in a claim average that is more than double the all-industry average.
    • As a result, underwriters and risk engineers give significant consideration to a contractor’s health and safety plans as well as their return-to-work programs.
  • Contractors are beginning to test different wearable technologies on their jobsites to prevent worker injuries.
    • Due to the high rate of muscle and back injuries, such emerging technologies as exoskeletons offer a potential solution. Exoskeletons can add strength and stability to a worker’s back, arms, shoulders, hips and legs by displacing weight and absorbing tension. A blog post from the Centers for Disease Control recently stated their agreement that exoskeletons can be a solution to musculoskeletal injuries in the workplace.
    • The development of smart glasses also offers a solution for training employees more effectively. Smart glasses can overlay instructions and guidelines for a specific area or piece of machinery that a worker is looking at. This allows them to better follow procedures and directions and can also highlight any potential hazards, leading to fewer accidents.
  • There is pressure in some states, such as Florida, to decrease WC rates. This could potentially lead to an escalation in WC carriers exiting the jurisdiction if they don’t feel comfortable with the premium they are able to competitively charge for a risk.

Umbrella/excess liability

Markets have steadily continued to broaden their appetite and offer lower attachment points, particularly for contractors with familiar operations.

  • While rates have generally continued to increase on lead umbrellas, these effects can be minimized through restructuring, marketing and reflecting appropriate exposure growth.
  • Markets have enhanced their lead umbrella capabilities to retain recurring and win new business as a supplement to their primary casualty offerings.
    • Carriers that give their underwriters the authority to write both the primary and lead umbrella tend to be more competitive because they can view the account from a more holistic perspective.
    • While the lead umbrella space is still primarily written by the same carrier as the primary, capacity for unsupported leads has grown over recent quarters as more carriers become comfortable with the premium levels in the market. Increased GL and auto attachment points have also added to carriers’ comfort-levels.
  • On large excess towers, efficient and strategic use of the domestic retail and wholesale market as well as the London and Bermuda markets is critical to putting together a robust program.
    • The London and Bermuda markets have become more competitive lower in the excess tower.
  • With more markets offering additional capacity, a trend has emerged for the preference to deploy their capacity in multiple, ventilated layers rather than in one single tranche.
  • Excess carriers, particularly in higher layers, are wary of exposures that have the highest potential to result in a catastrophic liability loss.
    • Some of the most prevalent construction exposures causing catastrophic losses include PFAS and other “forever” chemicals, wildfire, traumatic brain injury (TBI) and auto/truck accidents.
    • Residential and, particularly for-sale construction, is also viewed as a risky class of business due to the repetitive nature of building multiples of the same home or unit. If a defect is discovered in one home or unit, it is likely that the defect exists in others assuming the same means and methods were used.
    • Wood-frame construction is another challenge due to its potential for water damage.
    • Contractors with heavy auto fleets also experience difficulties in the excess markets with the prevalence of nuclear verdicts from auto accidents.
  • Umbrella and excess liability rates have continued to level out in recent quarters.
    • Umbrella rates in Q2 of 2023 increased at an average of 2.2%, down from 6.1% in Q4 of 2022 (WTW’s Q2 2023 State of the Casualty Market).
    • Excess rates in Q2 of 2023 increased at an average of 2.8%, down from 3.9% in Q4 of 2022 (WTW’s Q2 2023 State of the Casualty Market).

Controlled insurance programs (CIPs)

Larger and more complex new construction projects continue to come onto the scene through 2023. We do not expect a recession in the building industry this year or anytime soon.

Construction markets continue to focus on developing long-term partnerships in support of industry growth.

Project values continue to rise.

  • Construction material costs and availability are still playing a large role in construction value.
  • Increased values are driving premiums up even while achieving a competitive rate on more complex projects.
  • Inflation and higher interest rates continue to be a factor for project/property valuation.
  • Increasing loss estimates require new depths of underwriting analysis to properly price an exposure.

Markets are responding with broader offerings.

  • We are seeing direct market partners broadening capacity, coverage and deductible options to create long-term partnerships in support of project-specific programs.
  • Continued market competitiveness: Primary rates on complex projects with higher values are trending down.
  • Although insurers are hungry for these new projects, expect excess underwriters to need more time to finalize their pricing and terms.
  • On rolling programs, a market incumbent’s familiarity with the previous programs provides these insurers a level of confidence that allows for increased underwriting flexibility. Excess and surplus (E&S) wholesale markets are the exception to this when rolling programs include more difficult risks, such as residential, framework or increased risk for CAT perils.

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

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.

Primary market options

  • Primary GL limits of 5/10/10 are required in most cases to obtain excess coverage.
  • The minimum general liability retentions in NY are in the $3 million to $5 million range depending on project size and scope.
  • Very limited GL-only wrap marketplace: Carriers that enter this space have not lasted long.
  • Combined owner/general contractor project-specific marketplace for projects $300 million and under CV is competitive. These carriers for the most part require the use of third-party risk management review services for qualification.

Excess market continues to pose challenges.

  • Excess carriers require a minimum of a $5 million attachment point.
  • Lead excess pricing continues to be a challenge, with carriers seeking up to 100% premium to limit, depending on project exposures.
  • Due to restrictions in excess capacity, we are seeing reduced limits and more quota-share arrangements throughout the tower.
  • London and Bermuda markets are becoming more viable with needed capacity.

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

  • High inflation, nuclear verdicts and insurance payouts continue to trend upward on labor law claims.
  • Average settlement value of claims involving NY Labor Law 240 (1) is $1 million to $3 million.
  • The use of alternative dispute resolution has gained interest among owners and contractors since the recent positive outcomes on projects that have instituted its use.

Builders risk

The builders risk market is in a state of flux. It’s stable in some areas; however, still evolving/responding to recent industry loss events, including wildfires, tornados and hurricanes. Retentions are increasing, Delay in completion and wildfire are being underwritten with much more scrutiny. Rate increases for all construction types should be expected, especially highly CAT-exposed projects.

  • 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.
  • The builders risk market generally has sufficient capacity for our clients’ construction projects; however, capacity can be restricted based on geographical location, project size and type of construction.
  • Projects that involve high valued equipment/technology, modular construction, combustible construction (frame and JM/hybrid), or those exposed to natural disasters — should expect to encounter resistance from the marketplace and be subject to more stringent terms and conditions.
  • Limited underwriter bandwidth and increased underwriting discipline require longer turnaround times to quote.
  • Providing comprehensive and accurate underwriting information is essential to obtaining competitive quotes.

Water damage retentions — across the board

  • Water damage losses continue to plague the industry and are a major loss driver/challenge to the market. Increased water damage deductibles can be anticipated, especially on high-rise, residential and wood frame projects.

High hazard NATCAT exposed projects

  • Rates and deductibles continue to rise; especially in southeast U.S. post-2023 treaty renewals, carriers need much higher minimums to achieve technical adequacy for pricing related to catastrophic events, especially in Florida.
  • Damage from hail/tornado/convective storm: Many carriers are pushing for higher deductibles/limitations on hail/tornado/convective storm-exposed areas, project builders risk and master builders risk programs.
  • Florida wind capacity continues to tighten, and rates are up 50%+ year over year in some cases. We continue to see a push for longer waiting periods on CAT perils. The west coast and central Florida are becoming more challenging to get large bulks of capacity from an individual carrier.
  • Excess flood: Extremely difficult and limiting. Carriers flood mapping is evolving, now capturing pluvial and fluvial flood.
  • To summarize: Finite capacity is available, rates are very volatile and tough to predict.

LEG 3 — Limitations

  • Energy and civil risks continue to tighten on terms and available capacity in the marketplace.

Renovations with damage to existing RP exposure

  • Underwriting appetite is very limited on renovation projects that include structural elements and/or when the value of the existing building is more than 50% of the CV.

Project extensions continue to be challenging.

  • 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.

Wildfire exposure in northwest continues to be front-of-mind for carriers.

  • Increased rates and wildfire deductibles, in addition to possible restrictions in coverage, can still be anticipated on exposures that have a high wildfire rating.

Clients that can showcase exceptional risk management practices and on-site safety measures are best positioned in this market. Project-specific fire safety, hot work and water damage mitigation plans are encouraged on projects and typically required on all frame and high-rise projects.

HH NATCAT locations

  • It is critical to have adequate lead time for submissions.
  • Complete and adequate underwriting information/project details, elevation information, flood mitigation plans and emergency response plans will put insureds in the best position — especially coastal/surge-exposed locations.

Robust site security

  • Site security is a requirement for most large wood frame or JM construction projects. We encourage risk managers and contractors to look at site security as part of their all-in construction cost instead of as an additional cost. Electronic service monitoring can be costly, and prices range dramatically from vendor to vendor, depending on the scope of surveillance needed.

Project extensions

  • Project extensions continue to be challenging, 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.

Professional liability

The construction professional liability market remains competitive, with increased underwriting scrutiny for certain risks, and for carriers careful about capacity deployment and retention level.

  • Total U.S. capacity continues to exceed $300 million, with recent increases from new market entrants. Reduced capacity is available for project-specific placements because many insurers reserve this capacity for practice or annual clients.
  • While some insurers have reduced limits on specific coverage parts or on an overall book portfolio basis, many insurers offer at least $10 million per risk to insureds, with others able to offer up to $25 million. Most carriers restrict limit deployment for any one risk.

Most coverages are available from most carriers, but approach can vary greatly among insurers.

  • Insurers underwrite each risk on case-by-case basis with a focus on contractual controls and designer prequalification.
  • Depending on a project’s delivery method, insurers may request 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 limiting extended reporting periods to applicable projects’ state statute of repose or contractual requirement, whichever is less.
  • Design professionals in A&E 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 impacted contractual negotiations between design/build contractors and owners. This, coupled with the push for limitations of liability from design professionals, is making contractor-purchased project placements more expensive and leading owners to consider procuring owner’s protective indemnity.
  • The owner’s protective professional indemnity market remains robust with sizeable capacity and strong appetite for most projects.

Contractors pollution liability

Despite economic confusion, client need and carrier appetites for environmental coverages remain strong in our marketplace.

  • While some investors await better economic certainty, the application of environmental insurance has become even more essential for mergers, acquisitions and real estate transactions.
  • More than ever, authority approval from carrier leadership is needed on complex and larger capacity environmental programs.
  • Following a period of market consolidation, environmental market capacity remains stable with few new market entries.

Emerging exposures and opportunities continue to fuel the creation of new environmental products and the reimagined use of some old ones.

  • PFAS (per- and polyfluoroalkyl substances) restrictions are now common across most property and casualty lines, although environmental coverage may be secured for companies that can demonstrate de minimus exposure.
  • New developments in risk transfer products or combinations of existing products are being applied to new environmental opportunities, such as carbon sequestration (natural resources) and reps and warranties (M&A).
  • Ethylene oxide (EtO) continues to emerge as a potential contaminant to watch.

The magnitude and frequency of recent environmental claims have shaped carrier behavior and appetites.

  • Rising remediation costs have moved carriers to take a more active role earlier in the claim process to mitigate losses.
  • Major losses arising from ancillary environmental coverages, such as transportation and non-own locations/disposal sites, serve as a reminder of the importance of these coverages.
  • 20 years on, carriers continue to offer affirmative coverage for indoor air quality (IAQ) issues, such as mold and Legionella, but many employ various underwriting tools (class of business, named peril, per-door deductibles) to mitigate their exposures.

Environmental exposures in the construction industry persist and are expanding.

  • Excessive siltation and stormwater exposures continue to yield large pollution claims for new construction projects.
  • Redevelopment-related claims arising from pre-existing conditions, soil and water management and voluntary site investigations are commonplace.
  • PFAS restrictions are now encountered on construction-related programs.

Subcontractor default insurance (SDI)

Owners, developers and general contractors continue to leverage the comprehensive coverage SDI provides to ensure operations and projects are protected against subcontractor default. Owners, developers, lenders and general contractors continue to face subcontractor default risk and increased multipliers in claim magnitude. SDI usage continues to be an accepted performance and post-completion security tool with the comprehensive coverage provided by SDI. Schedule protection for the unforeseen subcontractor default (inflation/recession, materials and supply uncertainty and ongoing skilled labor constraints).

  • SDI marketplace is mature — six carriers since 1996.
  • Single limits can now be offered at $50 million or greater per loss.
  • Excess limits portfolio or project is available.
  • Dovetail use of surety and SDI.
  • Insurers continue to offer flexibility for annual, 24/36 month and multiyear programs and on subcontractor enrollment.
  • New capacity and choice: Buyers should retain experienced broker to tailor a bespoke program review, current policy terms, conditions and pricing.
  • There are increases in bankruptcy, claims and claim notices.
  • Claim experience matters versus a generalist approach.
  • Study the data (take it all in).
  • SDI “waterline,” loss multipliers and ground up magnitudes continue to see an increase.
  • New normal underwriting! SDI insurers are critical of contractors who are altogether new to SDI. Insurers have increased vigilance — more frequent in-person underwriting and risk engineering visits.
  • Owners and contractors will have greater emphasis on performance security tools surety/SDI.

Disclaimer

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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