Many things can go wrong on building and construction projects, and each individual project requires different risk assessments and strategies. The world has seen many high-profile project failures in recent times, including in the hydroelectric, gas and oil sectors, and natural disasters (floods, hurricanes, typhoons and landslides) have caused large losses and damages. COVID-19 has impacted the construction industry, in many cases leading to cessation of works or changes to favour short-term projects. There’s no doubt that insurance policies in the construction industry are evolving – but what do these changes mean, and do they affect you? Here are a few factors to consider.
Insurers not insuring for construction
The last few years have seen massive high-profile losses in the construction industry worldwide, from accidents, project failures and natural disasters. As these sort of events continue to have an impact on the construction industry, with losses to projects costing insurance companies big sums of money, many insurers have started to question if it’s still viable for them to offer insurance to the construction industry. In many cases, insurers are deciding it’s too expensive to offer insurance in this sector, so they are pulling out of the industry, no longer providing policies to the construction market at all. In fact, in the last year, at least 15 leading global insurers have pulled out from offering construction insurance in the Pacific, which has led to a loss of about $1.27 billion in market capacity.
With these big market losses (from high-profile natural disasters and gas explosions and so on), key insurance companies who have decided to still provide insurance to this sector are continually restricting the level of insurance they offer. This way, they can limit what they will have to cover under their policies. A growing trend is seeing projects that include airport loss, marine works, US liabilities, cyber and any high threat of COVID-19 are being restricted under coverage from many policies. Restriction of cover might not affect your policy at all – but it’s worth checking if you’re unsure.
Increase in prices
With many insurance providers pulling out of the construction industry, there is less competition among insurance companies. And with less competition, insurance providers can afford to increase their prices – and be confident that people will pay them, as they have limited other choices. This is one factor that has led to an increase in premiums – in 2020, construction insurance premiums increased by 15-30% in the Pacific. Likewise, excess levels have increased, meaning a claim can be quite expensive to the insured party. Not only that, but to provide insurance to the construction industry has genuinely grown to be very costly, with the increase in project failures and natural disasters we’ve seen in recent times.
Some particular incidents that seem to constantly have a high number of claims – such as escaped water related claims – are growing independently as insurers notice the trend. Extensive claims due to water related damages have led to an increase for premiums, particularly involving coverage of water damage, or the restriction of coverage in some policies.
As always in the current climate, COVID-19 deserves a mention. When the COVID-19 pandemic first hit, there wasn’t an industry in the world that didn’t feel an impact in some way. In many cases – and, indeed, in the construction industry – COVID-19 led to an increase in insurance premiums. COVID-19 offers a whole other layer of potential risks and losses to insure against – costly for the insurance providers, and for the people buying the insurance. Many insurance companies don’t cover against COVID-19 related losses, but some policies do, or have restrictions to what COVID-19 related things they will cover. It’s very likely COVID-19 will continue to have an impact on the construction industry for quite some time, and will probably be included (or excluded) from insurance policies specifically as time goes on. The global pandemic can also lead to delays in construction, with supply issues, lockdowns, border closures or social distancing guidelines reducing the workflow from full capacity – potentially another factor to consider when searching for the best insurance policy for your business.
Each state and territory has different guidelines for mandatory levels of insurance required of key workers in the construction industry. For example, in many states professional engineers are required to be ‘adequately insured’ in order to work in the field. As these guidelines change and are added to, certains types of insurance will become more commonplace. This could lead to further changes to premiums, as demand for certain levels of insurance goes up, or down if consumers leave specific policies for a different one stipulated by state guidelines. There isn’t a lot of room to move in regards to mandatory insurance, and it may be a costly necessity for you and your business. But it’s worth comparing your options to find the best possible solution.
It’s likely that the cost of construction insurance premiums and excess levels will continue to increase in 2021, as we saw in 2020, thanks to COVID-19 and more and more insurers leaving the construction market. However, insurance providers will largely assess each policy individually and weigh up the risks and potential for claims for that specific business – so make sure you have a good risk management plan in place to show your prospective insurers in order to assure them that your business takes risk management seriously. Make sure to talk through your options with an insurance broker to ensure the best possible plan.