As we reflect on the end of 2021 and look forward into 2022, we can certainly see reasons for optimism. The construction industry outlook, for the most part, is positive. We still anticipate certain sectors will remain behind pre-COVID-19 levels (e.g. office), but the industry will be buoyed by increased numbers in other sectors such as infrastructure, manufacturing, and warehousing. Even areas heavily impacted by COVID-19, such as hospitality construction, are eager to get back to developing and building.
In the insurance industry itself, we are also seeing more indications of an improved marketplace but we are still supporting our commentary from the second half of 2021 that we are experiencing a two-tiered market. The tiers are delineated by those that have taken extra efforts to set themselves apart as best in class and can show the results. The required efforts transcend clients; today's marketplace requires insurers and brokers to work even more closely with clients and to use all the available tools including data and analytics to create a bespoke story that shows why a particular risk is worthy of greater consideration from the markets and to set themselves apart from others.
Even as we see some positive actions, many trends highlighted in 2021 continue today and some of the more prevalent areas are:
- Underwriters still require very detailed submissions that clearly describe actions being taken to improve performance around risk as well as any supporting documentation around results that indicates the actions are having a positive impact.
- In their pursuit to restrict coverage and conditions, many of the markets are pulling in authority levels and centralizing some of the underwriting.
- The increased scrutiny and enhanced process means more time is needed to develop program options. Every stakeholder in the chain needs more time to perform their role in the underwriting process which means everyone needs to start their process earlier than in years past and develop a clear strategy with milestones to assure proper capacity levels are achieved and ready to bind when needed.
- In the excess liability arena, markets are continuing the trend to reduce their capacity in any one project or program and as they reduce their capacity it is increasing the need to add multiple new markets to any given program to reach targeted limit levels. The trend raises some concerns around the possible coordination of insurers in a claim situation.
We are also seeing an acceleration of some new concerns that are impacting the market.
- Cyber threat which has been noted in last year’s WTW Global Construction Rate Trend Report, continues to be an area of risk that is evolving more rapidly than the industry's response with new product offerings. Clients are looking for clarity of exposure and balancing the value of products available to the anticipated premium to decide the best risk handling approach. We anticipate new product offerings around this rapidly evolving area of risk.
- The 2022 Reinsurance Treaties renewals did not create significant impact to overall capacity availability but they did indicate some concerns around Environmental, Social and Governance (ESG) principles and their impact on underwriting and allocation of capacity. The shift in ESG positions will impact capacity in two ways:
- If a project is not ESG compliant the insurers may / will not be able to participate in the placement. Coal Projects could be used in this situation as an example of one that may lose insurers' ability to participate.
- If the company is not ESG compliant with the 2016 Paris Agreement, we anticipate we will see more markets provide less capacity than those that are in
compliance. This trend is one that is accelerating and will need on-going focus throughout 2022 and beyond.
- Beyond the global health impacts of COVID-19, the pandemic heightened awareness of supply chain weakness that have had ripple effects on the availability and costs of building materials as well as on the acute global shortage of labor issue. All of these factors have created impacts on project schedule which subsequently then are impacted by the difficulty to get term extensions of project specific insurance placements. Constant monitoring of a project's timeline to completion is needed to allow for the time to develop a strategy early if it appears an extension will be required because the request will be giving an underwriter the ability to re-evaluate the entire program and pricing.
In summary, the current environment is experiencing stabilization in rates for most lines of coverages, but that stabilization is only achieved with significant preparation and attention to detail around measures in place to control and limit loss activity. Renewals, new business and project specific submissions all require more time to develop, and each needs a far higher level of detail to obtain preferred treatment. More importantly, each submission needs a specific strategy to use as a guide to navigate the evolving marketplace.
Each region around the world has some nuances that are important to recognize, and we hope our region-to-region summary gives you specifics that may have more application to your situation. As always, please reach out to any of our fully connected experts globally for additional insight on any specific issue.
