There are many questions concerning the insurance and surety marketplace for construction in the United States in 2018. Will auto insurance rates continue to increase? How will the aftermath of Hurricanes Harvey, Irma and Maria affect insurance rates? What should construction companies budget for builder’s risk insurance? The following is a snapshot of likely changes in the coming months.
Throughout the last year, insurers have seen their largest vertical losses. Distracted driving, more litigated cases and the increased cost of repairing automobiles have all played a role in this market change. Looking ahead, construction business owners can expect to see new underwriting standards, which could lead to higher rates—as much as 20 percent.
In addition, insurers will be taking a much closer look at driver and contractor safety culture, including motor vehicle records and, ultimately, enforcing stricter driver requirements. Contractors can expect rate increases across the board, and those with large losses should expect higher attachment criteria for excess liability. This will require the insured to procure a “buffer,” or “umbrella,” layer of coverage.
As far as the excess market as a whole, rate relief continues at 2 to 5 percent, with much of the pricing dependent on auto fleet schedule, driver safety and related loss activity.
The general liability market remains stable. Contractors with favorable loss history should expect rate decreases of 5 to 7 percent, and contractors with loss activity can expect flat to slightly increased rates.
There is an uptick in liability only controlled insurance programs (CIPs)—especially regarding residential construction—underwritten at competitive rates and terms, despite a decrease in the residential construction appetite of standard insurers. As a result, the excess and surplus lines market has stepped up to insure much of the residential construction space, including condominiums.
Larger construction projects are evaluating either owner-controlled insurance programs (OCIPs) or contractor-controlled insurance programs (CCIPs) for projects with construction values over $200 million. Not surprisingly, many insurers are actively entertaining submissions at reasonably competitive rates and terms.
New York Labor Law 246.1 concerning unsafe workplaces remains an obstacle to underwriting interest and competitive terms. Contractors in this area can expect further tightening of underwriting and higher underlying limits for excess attachment.
With the impact of Hurricanes Harvey, Irma and Maria, changes in the property market, with increased rates and added subjectivities on all frame construction, can vary from 5 to 20 percent based on catastrophe exposures. Contractors should be prepared for stricter security measures and increased deductibles. Because of the abundance of water damage claims in the builder’s risk space, contractors can expect to see retention rates three to four times their “all other peril” deductible.
For nonframe construction classes, it will be business as usual. Depending on project details and market relationship, some could see slight decreases in rate. However, all contractors can expect underwriters to be stingy with their flood capacity, no matter the construction type.
Over the last 8 years, the surety industry’s direct loss ratio exceeded 20 percent just once, and that was only marginally in 2012 at 21.6 percent. Gross written premiums, while relatively stagnant from 2009 to 2012, have seen modest but reliable growth since 2013.
Tracking the same 8-year span, there has been an excess of $1.5 billion in U.S.-Treasury-listed capacity to enter the surety market. Many of these new entrants have a specific target or are exclusively focused on the commercial surety industry segment.
For some of these new markets to achieve premium targets, there has been increased flexibility in the definition of commercial surety accounts and appetite to support what has traditionally been viewed as contract surety. Overall, new market entrants, profitable results and compressed loss history have all contributed to ample capacity in the marketplace and unusually competitive pricing.