The U.S. construction industry is on a post-pandemic rally, with the sector spending $1.7 trillion in October 2022–that’s 9.2% better than October 2021. Furthermore, the entire insurance liability market is expanding significantly, projected to grow from $252.3 billion in 2021 to an estimated $432.8 billion in 2028, according to Allied Market Research.
With more government money and more building projects in play going into 2023, one area where the construction industry is finding firm footing is with liability insurance, albeit with some major risks in play.
“The introduction of new construction materials coupled with a renewed emphasis on modular building, artificial intelligence, 3D printing, and wearable and drone technologies is not only expected to ease existing cost burdens but also speed construction processes while completing projects on time and within budgets,” says insurance analyst Jeff Slivka in a 2022 research report by RT Specialty Environmental & Construction Professional Liability Practice.
Another boost is expected to come from President Joe Biden's $1.2 trillion infrastructure spending plan, which says it "will deliver $550 billion of new federal investments in America's infrastructure over five years, touching everything from bridges and roads to the nation's broadband, water and energy systems."
There is downside risk for construction firms seeking the best terms on a liability insurance deal.
“Current optimism should also be tempered in at least the near term by the effects of an environment filled with greater governmental scrutiny and regulatory guidelines,” Slivka says. “Contractors are also facing double-digit increases in insurance premiums experienced in many lines of business, tighter underwriting standards and new exclusions covering the scope of communicable disease exposures.”
“Even though these factors are slightly less impactful on the contractors professional liability insurance products, they'll influence liability insurance deals nonetheless,” Slivka says.
Price-wise, sector liability insurance premiums rose 18 quarters in a row through mid-2022, with costs rising by 6.6% in the first quarter of 2022. On the upside, more liability insurance firms have entered the marketplace in 2022, which seems to be moderating premiums heading into 2023 as insurance firms compete cost-wise with each other in an expanded market.
Even so, key premium influencers like high inflation, soaring interest rates, ongoing supply chain issues, and rising economic volatility continue to drive construction industry liability insurance costs, and those costs likely won’t decline until those issues finally recede.
Areas of Coverage (and Areas of Concern) in the Liability Insurance Market
Thanks to more construction industry property and casualty insurance players in the past few years–the market has seen 20 new insurers since 2020–good deals are easier to come by for construction companies.
Yet, even as prices may abate in 2023, there are other potentially downside issues for firms to contend with as they raise project capacity and undergo for federal regulatory scrutiny. These liability insurance realities make the top of that list.
What questions should construction company decision makers be asking their commercial insurers regarding liability issues heading into 2023–and why? Insurance experts say these issues should on the “Q&A” table.
That’s why it’s a good option to look at the larger, more experienced insurers when researching property and casualty insurance issues.. “Chubb and AIG will likely continue to lead the market as commercial liability insurers,” Musson says.
Construction decision-makers should work with their insurance broker, and carrier to discuss their insurance program, including the program's flexibility and retention levels to help mitigate any rate increases.
“Decision makers should also check with their broker and carrier about access to helpful resources carriers have for clients in safety, loss control, and claims,” Parsons says.
This is an often-underutilized resource for construction companies, as there are many policy features construction company executives can leverage in 2023. “For example, there are tools to help prequalify subcontractors, as well as new tools to help risk management departments with their contracts and risk transfer,” Parson says.
Written by {{author.AuthorName}} - {{author.AuthorPosition}}, {{author.Company}} {{author.Company}} Contact Info: {{author.OfficePhone}} , {{author.EmailAddress}}
{{comment.Text}}