No sign of turn in construction market

There is no sign yet of the construction insurance market softening and conditions could remain tough for buyers for some time, but there is likely to be enough capacity to meet the potentially huge demand from a raft of government stimulus packages around the world, according to experts at Commercial Risk’s latest event.

The construction insurance market has been difficult for buyers for several years now after beginning to harden in 2019.

Paul Marshall, risk manager at Bechtel, explained at our Construction Risk Management Conference that rates are still rising, coverage has reduced, there is pressure on deductibles and capacity has fallen from $4.5bn to around $3bn today.

Unfortunately, Marshall and fellow speakers from the world of broking and insurance don’t see signs of market softening now or in the near future, despite some evidence that things are not quite as difficult for buyers as they once were.

“There is no softening yet in the construction insurance market but there is now more focus on the specific risk rather than just generically across the board,” said Marshall at the event sponsored by Aon as the headline partner, and Swiss Re Corporate Solutions, QBE, Zurich Insurance, Sedgwick, Scor and Jupiter Intelligence.

Fellow panellist Peter Rudd, executive director of international construction at Aon, added: “From a forecast perspective we are not seeing anything in the current environment that suggest the market trend is going to reverse.”

“We see the occasional project that places a bit quicker than we might have anticipated but that is often followed up by a number of projects that have some significant challenges,” the broker added.

He said that the market is very different from three or four years ago and went through a very tricky transition in 2019. However, Rudd said the construction market has been more stable for the past two or three years.

Andy Kane, portfolio manager of construction at QBE, said he expects construction insurers to face challenging results for a while yet as the effects of re-underwriting filter through. So he doesn’t foresee a soft market for “some years” to come because insurers financials simply won’t support it.

James MacNeal, global industry specialty leader, construction and infrastructure at Aon, agreed that it will be a while for the results at construction insurers to turn around. But he encouraged new players to enter the market and made the point that now is a good time to for them to take advantage of better rates and conditions for insurers.

“It is going to take time for underwriters to see the profitability because of the tail. However I would argue as a broker it is actually a great time to start as a construction insurer because now you are getting more stable and sensible pricing,” he said.

The capacity currently available in the construction market may get stretched further as planned government stimulus packages around the world to boost infrastructure ramp up.

But MacNeal and other experts believe there is enough capacity for construction all risk (CAR) cover to meet this demand, but said professional indemnity (PI) limits might be more of a problem for insureds.

Isabelle Kowalski, global head of construction at Scor Specialty, said the $3bn of CAR capacity currently available in the market is likely to be enough to meet the demand from these stimulus packages.

But she agreed with MacNeal that PI and liability cover might be more challenging as inflation hits.

And Rudd too thinks the construction insurance market will be able to meet the demand from buyers.

“The level of construction projects being forecast is eyewatering but it is not the first time we have seen these types of forecast…historically the market has responded and I think it will respond. We are seeing a strong flow of projects but nothing that the market is threatening not being able to handle,” he reassured risk managers.

The construction event was held in association with Airmic, the IRM, Imia, Irmi and Leg.