2022 Market Update – Construction Liability
Construction Liability has continued to provided challenges. A number of key markets have reduced their capacity and appetite for construction contractors after a decade of unprofitable underwriting.
Worker to worker claims (which commonly only appear 4-5 years following the incident) continue to reduce insurer profit margins. As a result, significant increases in premium and excess structures for contractors has continued.
Mid-market contractors have generally had significant premium uplifts over the past 3 years. We expect renewal outcomes to be more stable in 2022, though insurers are likely to continue to seek moderate increases.
Smaller contractors are likely to see continuation of premium increases and larger deductibles applied. The insurance market has found that smaller contractors can be more exposed to large claims- particularly where they don’t have access to OH&S resources that may exist in larger firms and are bound by contractual conditions imposed upon them by larger more sophisticated principals – particularly in the commercial space.
Insurers now tend to request, and comprehensively review, policyholders’ contract documents. In doing so, they are scrutinising detrimental contracting provisions, . Policyholders with poor contract administration processes and those who provide ‘no-fault’ indemnities or otherwise prejudice defence/recovery of claims, are being penalised. Further, insurers will have regard to the way in which risk is transferred to sub-contractors and in many instances require said contracts are back-to-back. Where a policyholder can demonstrate this in its underwriting submissions, insurer will look favourably on it. Insurers are moving away from offering blanket contractual liability cover except where rigorous risk management is embedded in the organisation.
Clients in this sector should ensure they are reviewing the contracts they intend to execute and seeking their brokers input to ensure they are compliant. Particular attention should be paid to the inclusion of principals as “joint named insureds” and exclusion of proportionate liability or blanket indemnities which could see a claim rejected by an insurer. Contracts with principals are generally becoming more onerous and need to be more heavily negotiated prior to acceptance.
Trade contractors, particularly plumbers, remain hard to place in the current market. There has been increased frequency in water damage claims. Many of these claims are from failed crimping or product defects. Fire contractors have also experienced uplift as a result of water damage claims in the sector.
Insureds who have poor loss ratios over the past 5 years will be “claims rated” and should expect premium / excess uplifts. If the losses appear to be a result of poor work processes or defective workmanship the market has little appetite to support this at any price. In addition, there are less ‘alternative’ insurers, particularly given some “traditional” insurers have exited the space. Insureds will need to be willing to negotiate increased excess structures or reductions in cover to mitigate against significant premium uplifts.
Whilst there is no doubt that this sector has been experiencing a significant correction in terms and conditions offered, there are signs of improved conditions on the horizon. We expect to see pricing moderate over the next 12 months, and while premium rate increases may still be experienced, there are unlikely to be significant unexpected premium uplift for contractors during their next renewal period.
As always, the best course of action to avoid surprises is to provide detailed information and clarification to potential markets to differentiate risk and ensure the best possible terms and conditions of cover are obtained. Given the workloads of insurers in this space the best result is achieved by engaging with the market early to allow sufficient time for negotiation prior to your renewal date.
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