| Trend | Range | |
|---|---|---|
| General liability |  |
+5% to +15% |
| Auto liability and physical damage | |
+10% to +15% |
| Workers compensation |  |
Flat to +5% |
| Umbrella (lead) | |
+5 to +15% |
| Excess | |
+10% to +15% |
| Non-High Hazards Nat Cat Project Specific Builders Risk | |
+5% to +10% |
| High Hazard Nat Cat Project Specific Builders Risk | |
+10 to +20% |
| Master Builders Risk/ Contractors Block | |
+5% to +10% |
| Professional liability | |
Flat to +5% |
| Project Specific/ Controlled Insurance Programs for Excess | |
Flat to +10% / +5% to +30% |
| Subcontractors Default Insurance (SDI) | |
Flat to +5% |
The market is currently well-equipped and confident, with sufficient capacity, appropriate attachment points, and a diversified portfolio. The consensus in the industry suggests that the global risk-adjusted reinsurance renewal rates have remained stable as of this past January, supported by substantial capital that meets the market's demand under the 2023 terms and conditions. According to the Swiss Re Global CAT Bond Performance Index, there is a notable investor interest in CAT bonds, which have yielded returns close to 20%[1], fostering a more lucrative reinsurance climate.
Despite ongoing challenges such as labor shortages, supply chain disruptions, rising claim costs, and uncertain interest rates, recent market adjustments have led to better insurer loss ratios and a more stable rate environment. Contractors and their brokers face the ongoing task of balancing persistent rate increases driven by inflation, litigation costs, and rising nuclear verdicts, with the specific loss experiences and risk management strategies of each account.
There has been a noticeable adverse development in auto liability from 2015 onwards and in general liability from 2016 to 2019, with 2019 marking the least favorable year for both categories. Furthermore, a report by Marathon Strategies indicates a trend towards the peak levels of corporate nuclear verdicts seen in 2019[2], where losses exceeded $10 million.
The auto liability and lead umbrella lines continue to be problematic, with the initial $10 million in limits often considered the most active. However, the emergence of new market players targeting low to moderate risk profiles or higher excess layers has introduced competitive pressure on established markets, leading to more favorable rate outcomes. As these newcomers expand their market share and appetite, increased competition is expected, which could help alleviate the need for rate increases.
High-risk construction groups remain an exception to general industry trends, facing limited market appetite for high-severity risks, which are often subject to higher rates and retention levels along with capacity limitations. Contractors in this segment are exploring alternative risk transfer methods and captive solutions. Effective early communication and strategic marketing are essential to set and meet proper expectations, with the most successful outcomes often involving active contractor participation.
Contractors are increasingly focusing on employment and hiring practices to attract and retain talent, investing in training and development to ensure all team members are well-prepared with the necessary knowledge, resources, tools, and techniques to safely and efficiently complete projects without defects. Although traditionally slow to adopt new technologies, the construction industry is now showing a heightened interest and investment in technological solutions to address labor shortages, enhance operational efficiencies, and capture data more effectively. Larger and more sophisticated contractors are using technology to reduce losses, relying on data analytics and performance indicators to improve outcomes and enhance risk profiles.
The industry is expected to increasingly utilize technology, with a growing adoption of drones, wearables, and robotics. The use of artificial intelligence (AI) and robotics is also expanding as contractors strive to meet growth objectives and address succession planning challenges in a labor-constrained environment.
As a final point, and a continuation of 2023, we anticipate significant activity will continue through 2024 primarily in infrastructure (roads, bridges, airports, alternative energy), renewable energy, industrial manufacturing, (semi-conductor chip plants, EV battery plants, data centers and distribution facilities) and healthcare (hospitals). As such, we expect to see more joint venture arrangements and alternative contract types, such as P3 and EPC contracts.
The construction sector is increasingly leveraging technology to bridge labor gaps and enhance operational efficiencies. This adoption is expected to continue growing, with more widespread use of AI, drones, and robotics. These advancements not only help in managing current challenges but also in driving future growth and sustainability in the construction industry.
The umbrella and excess insurance markets have shown a trend towards stabilization over recent years, a pattern that is expected to continue. Insureds with low-to-moderate risk profiles and a positive loss history are likely to benefit the most, as reduced competition among supported lead capacity drives favorable outcomes.
As the market evolves, increased attachment points and consistent year-over-year rate hikes have spurred competition, particularly for lower hazard classes. This competition often results in more attractive pricing. However, the rate adjustments may vary depending on the level of exposure and loss experience. For instance, contractors with increased exposures and favorable loss in histories might see their rates remain stable or even decrease. Conversely, reduced insurer appetite or capacity constraints in the insurance tower could lead to rate increases, typically in the mid-to-upper single digits.
For higher hazard risks – such as large auto fleets, New York construction operations, residential projects for sale, wood-frame constructions, and trades involved in high-risk activities like demolition – the market remains challenging. Insurers are particularly cautious, often leading to limited market options and higher rates through the excess layers.
The commercial construction sector’s builders risk insurance market is showing signs of recovering from the tough adjustments of the previous year. While rate increases are still on the horizon, they are not as severe as before. The market is beginning to see more capacity, indicating positive treaty reinsurance renewals. Quota-share arrangements are becoming more common for larger risks, and underwriting continues to be stringent for perils like wildfires and severe winds.
New legal developments have prompted the market to reconsider LEG3 coverage, with most insurers expected to adjust their policy terms accordingly. The capacity for wood frame construction remains stable, dependent on robust security measures and risk mitigation strategies. However, both primary and excess natural catastrophes(Nat Cat) capacities are still recovering from a challenging 2022.
Project-Specific Programs and Controlled Insurance Programs (CIPs)
Construction Project Insurance is beginning to experience a stabilization after a long, rocky hard-market cycle. It is safe to say that this stabilization is largely due to the new norm of witnessing massive construction projects readily introduced into the insurance marketplace. Coverage and limits remain readily available for most project types and carriers have been eager to favorably rate CIPs excited for an opportunity to be a player on this new field of growth. There has been a jump in spending on data center construction as well as life science facilities both being desirable risks for the insurance marketplace. Additionally, several mega manufacturing projects remain in the pipeline for this year.[3]
The exception to this favorable placement result continues to lie with for-sale residential, coastal, mass timber or wood frame builds. Despite the challenges these construction risks face, there is not a trend of decrease in these projects being introduced. Interestingly, the reduction in construction spend appears to be in the traditional nonresidential space while office construction spending remained flat and highway & street spending slightly decreased.[4]
As with earlier in 2024, the lack of counterbalance from the less complex placements is causing greater scrutiny from the markets requiring more detailed underwriting information. For Nat Cat-exposed areas, project insurance markets continue to place special underwriting attention on heavy storms, wildfires, and flooding.
It is important to point out that the construction industry is still dealing with challenges such as increased interest rates, rising cost of materials, shortages of skilled labor, and operational efficiencies particularly with the growing use of AI. For these reasons, buyers of construction insurance expect alternative solutions for covering their risk as an avenue for decrease in financial burden. The stabilization of rates for OCIPS, CCIPS and other project specific programs continues to allow for optimal insurance coverage, streamline claims handling, and saving for all parties involved.
Auto liability remains a significant challenge across various industries. Even though the National Highway Traffic Safety Administration (NHTSA) reported a decrease in traffic fatalities in 2023 despite an increase in miles driven, the auto insurance sector continues to struggle with profitability.[5] According to a report from The Insurance Institute, auto losses have escalated by 15% since 2020, while premiums have decreased by 13%.[6] This trend underscores a significant rise in the severity of claims over recent years.
Additionally, factors such as social inflation and the rising cost of materials are increasingly influencing the adjustment of auto claims, further complicating the landscape for insurers.
General liability (GL) insurance for many contractors has maintained a level of stability. As supply chains have gradually aligned with demand, the urgency to adopt alternative building materials and methods has decreased. This alignment has eased some of the pressures contractors previously faced. Despite this, there remains a strong interest in exploring innovative construction approaches like modular construction and mass timber, particularly in areas experiencing population growth. However, the stabilization of supply chains has made contractors more cautious about assuming risks associated with these new methods, especially when project timelines and budgets can be more accurately forecasted. This cautious approach is reflected in the routine inclusion of umbrella/excess, cyber, and Perfluoroalkyl and Polyfluoroalkyl Substances (PFAS) exclusions in renewal programs, indicating a preference for more predictable operational frameworks.
Workers' compensation remains one of the most stable and reliable sectors within the property and casualty insurance industry. It consistently outperforms other major lines due to its predictability and security. Despite ongoing trends that have led to reductions in state rate classifications, rising labor costs could potentially offset these reductions, impacting overall cost savings.
Moreover, the landscape of workers' compensation is also influenced by increasing claim costs and heightened litigation activities, particularly in states like California, New Jersey, and New York. These factors are significantly affecting the way insurers assess and apply rating methodologies.
Professional liability (PL) insurance in the construction sector continues to be competitive, maintaining stable premium rates for a broad range of exposures. Insurers continue to exercise caution with managing their capacity and retention levels for both ongoing practice policies and project-specific coverage.
The total capacity for most contractor risks in the U.S. remains robust, exceeding $300 million. This capacity is bolstered by contributions from new market entrants and additional capacity may be accessible through markets in London and Bermuda. However, capacity for project-specific placements is more limited as many insurers reserve this for practice or annual clients.
Insurers typically offer a minimum of $10 million per risk, with some able to provide up to $25 million. Most insurers limit the amount of capacity deployed for any single risk.
Less capacity is available for contractors with substantial design responsibility, especially if design is performed in-house, as fewer insurers are willing to engage on a primary basis for these risks compared to those involving subcontracted design services.
Retention levels are generally stable unless they fall below the market standard, and they are influenced by the size of the insured's business and limit deployment.
Adequate capacity and continued competition are generally keeping rate increases minimal compared to other property and casualty (P&C) lines.
However, there is upward pressure on rates for certain risks, such as those involving a substantial amount of exposure to design-build projects, whether they include in-house design or not. Rate increases are typically below 5% for risks with a clean loss history, though rates can be influenced by significant changes in the ratings basis (revenue) and revenue categories.
Most coverages are available from most insurers, although approaches can vary, especially concerning certain coverages. Insurers assess each risk individually, focusing on contractual controls and the prequalification of designers. Attention is often required for specific contract and policy language, including limitations of liability provisions.
Insurers are careful to distinguish between product design, process design, and construction/ installation design, as designer/contractor programs are intended for construction-related risks. Some aspects of product design may be covered under these programs.
Many insurers reserve their project-specific capacity for current clients on annual practice programs. Total policy terms (policy period plus extended reporting period) of 15 years are widely available, with longer terms available from a select few markets. There is a trend toward aligning these terms with the lesser of the applicable state statute of repose or contractual requirements.
Capacity for design professionals, particularly on design/build infrastructure projects, is reduced, affecting contractual negotiations between design/build contractors and owners. This, coupled with increased demand for limitations of liability from design professionals, is driving up the cost of contractor-purchased project placements, and leading owners to consider procuring owner’s protective professional indemnity.
The market for owner’s protective professional indemnity remains strong, with substantial capacity and a robust appetite for most projects.
The pricing and structural setup of controlled insurance programs in New York often make them viable primarily for exceptionally large projects or for those incorporated into ongoing, rolling programs.
Additionally, there has been a noticeable decrease in the construction of high-rise residential buildings
NY Labor Law 240(1) maintains its reputation for making New York a less attractive state for insurers, with only a few new insurers entering the market and the average settlement value of claims under this law remaining significant.
Simultaneously, the adoption of alternative dispute resolution is on the rise, increasingly being implemented in numerous large-scale projects both in New York City and upstate New York.
Interest rates and insurance premiums are closely linked, affecting the profitability of the insurance industry based on specific circumstances and the broader economic context. Insurance companies typically invest the premiums they collect into fixed-income securities such as bonds and treasury notes, which are subject to regulated investment guidelines. These investments generate additional income that can be used to pay claims and cover other expenses.
When interest rates decrease, the value of existing bonds generally increases. However, if an insurance company needs to liquidate its bonds prematurely, the yield might be lower due to the inverse relationship between bond prices and interest rates. On the other hand, when interest rates increase, insurers face reinvestment risks. Their existing low-yield investments may not perform as well as new, higher-yielding opportunities, delaying potential gains from these investments. This can defer the realization of investment income, impacting the timing of when premium savings are realized.
Higher interest rates also influence the calculations used to determine the present value of future claim payments. With higher rates, the calculated reserve amounts are lower, which can result in lower reserve requirements and potentially higher profits for insurance companies.
Despite these challenges, the market currently has a greater capacity, particularly for insurers with a strong performance record. Established insurance partners are often willing to offer flexible pricing and terms to retain valuable clients and discourage them from seeking other providers. This familiarity with clients' risks and needs gives incumbent insurers an advantage in maintaining long-term relationships. This dynamic underscores the importance of strategic financial management within the industry, aiming to balance risk and return while fostering strong client relationships.
Subcontractor default insurance (SDI) is witnessing an expansion across North America. As financial pressures persist and project complexities increase, stakeholders such as owners, developers, and general contractors are increasingly relying on SDI programs. These programs are evolving to offer higher limits and more appropriate terms to meet the growing demands of more intricate projects anticipated for 2024 and 2025.
Currently, the SDI market features six active carriers, capable of providing coverage limits of $50 million or more per loss. These carriers are adapting to the market by offering flexible terms for both annual and multi-year programs, accommodating a range of contractor sizes from small to large. This flexibility is crucial as it allows for a broader inclusion of contractors into SDI programs.
As the market grows, the number of claims and the complexity of those claims are also increasing, highlighting the need for ongoing review and adjustment of policy terms, conditions, and pricing. The underwriting process itself is facing challenges, particularly with new entrants to SDI who may not be familiar with the demands of these programs. In response, carriers are advocating for more traditional, in-person underwriting and risk assessment methods to strengthen relationships and enhance the accuracy of risk evaluation.
Looking ahead, contractors must navigate several challenges including inflation, material and supply chain uncertainties, and the ongoing shortage of skilled labor. It is anticipated that contractors will need to balance the use of SDI with subcontractor bonds to effectively manage risks during this period of growth and uncertainty.
The SDI market remains strong and responsive, with carriers adjusting their offerings to better meet the needs of their clients. This includes the introduction of excess program offerings and a greater openness to engaging with larger projects and partnerships.
Environmental risks in the construction sector continue to grow and evolve, presenting ongoing challenges:
The Canadian marketplace specifically for operational insurance renewal placements has softened since our last report.
There is an abundance of market capacity for both property and casualty renewal placements with ample competition which is leading to favorable terms and outcomes.
Our clients are seeing high single to double digit savings in many cases and these results are driven by a number of factors such as:
These are the main factors that are attributing to the improved renewal premiums, terms,and conditions.
The outlook for the rest of Q3 and Q4 for project placements is very positive for Wrap Up Liability and remains stable for Builders Risk. Critical in all of this is ensuring wholesome project underwriting details are collected to drive the meaningful market engagement and subsequent positive results.
Construction project placements:
Operational & Practice Insurance:
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).
