The Australian construction sector is facing increasing pricing, higher excess levels and restricted insurance cover due to natural disasters and project failures. There is a looming potential for insurers to shift away from long term construction risks, instead replacing them with annually renewable risk exposures.
At the beginning of the year treaty renewals experienced an increase in reinsurance costs. This lowered profitability and led to multiple insurers completely withdrawing their cover from the construction industry, decreasing the supply chain.
The construction market recap report from the past few years outlined “the construction industry is not immune to major events”.
This has created implications for long term contract periods, with capital reducing long term risk and alternatively opting for short term risk exposures.
A sequence of high profile construction project failures globally, in combination with an array of natural disasters as well as COVID-19 has impacted the construction industry greatly. So much so that insurers are considering insurance coverage restrictions for the construction industry.
A number of insurance companies have placed their construction books into run-off and in the last 12 months or so, 15 global leading markets withdrew from underwriting construction risks. This resulted in a $1.27 Billion loss in market capacity.
These losses have led multiple insurers to review their long term participation in the construction industry. Insurance premiums increased by 30-35% last year, with construction liability insurance and excesses also rising significantly.
The report suggests that insurers will become more selective with the terms and conditions that they offer for construction risk. Other areas of insurance including property and casualty are also on the increase, as major markets avoid risks that don’t adhere to strict underwriting guidelines.
Head offices are adopting an underwriting approach that focuses on practicality and profitability. Many underwriters are waiting for lead terms to be finalised before considering their participation in the industry, as they are restricted to the original approved terms.
An example of a key area for concern is water damage. Insurance companies have experienced high volumes of claims for residential and building projects relating to water damage. This has led to increased premiums and cover being limited or excluded completely.
Businesses within the construction industry weighing up their insurance cover options may achieve a more positive outcome by investing in an insurance broker. Demonstrating lower risk and associated capital spend will optimally position businesses to obtain the best cover available.
Despite the challenging entrance into 2021, insurers have the ability to position themselves to improve outcomes and navigate the market optimally in order to limit cost increases.
Craig from Business Insurance Consulting is a highly experienced insurance broker that can assist with finding optimal cover for businesses, within the construction industry, that have been impacted by the capacity crunch. Get in touch with Craig for more information in regards to adequate cover for your business.
Insurance News – https://www.insurancenews.com.au/local/capacity-crunch-hits-construction-sector