Risk management vital to securing coverage in hardening construction market

Good risk management is becoming increasingly important for construction firms looking to buy insurance as the market hardens, according to brokers and insurers. So much so, that in today’s market, risk management is making the difference between whether an insurer will grant cover or not, rather than simply obtaining protection on better terms, they added. The experts agreed that it is more important than ever for risk managers to work with their brokers to present their risk. Speaking during a recent CRE webinar, Bernadette Hackett, global relationship leader at Zurich, said risk management is increasingly reflected in underwriting decisions. Companies that prove they are doing the right things can still secure preferential treatment in the hardening market, she added. “If you manage your risk and are prepared to sit down and look at your insurer face to face and say ‘this is what I am doing, this is why I am doing it and why I should be treated outside of the pack’, I don’t know a single insurer in the entire market that wouldn’t be open to that conversation,” she added. The experts also explained that in the hardening market, insurers are doing more homework on potential clients before they agree to cover. For example, Ms Hackett said they are running financial checks on contractors and looking into what employees think of an organisation, to reveal what is going on behind closed doors. Andrew Kane, portfolio manager of construction at QBE European Operations, agreed that there is much more focus on risk management from construction insurers than in the past, when some took their eye of the ball. He conceded that standards of project risk management and risk assessment among insurers slipped over time in the soft market, but believes things are “definitely” changing. He also warned that whereas proving you have good risk engineering would previously have delivered a premium discount, it is now often a prerequisite for cover being written. “In the past, carriers would look at risk engineering at insureds as obtaining a discount, whereas the attitude now is if you are not doing a minimum standard it might not be written… so it has gone from being a discount to acceptability factor,” said Mr Kane. Peter Rudd, construction team leader at Aon, agreed on the changing approach from insurers and vital importance of demonstrating construction risk management to secure cover. “Underwriters today need to justify why they are making decisions, whereas previously there were targets to hit, premium volumes to reach and that seemed to be the priority. I am not suggesting that was every single insurer in the market, but there were certainly a group of insurers that were writing in that manner. Now they are having to demonstrate the risk engineering and risk management that has been put in place on a particular project, or by a particular client. This is needed to help insurers justify their desire to write that piece of business,” said the broker. Mhairi Hawken, executive director and SVP at Aon, also said insurers want to see that companies have learnt lessons from any losses. “You need to prove lessons learnt on claims. The market really wants to understand that you have learnt and things won’t be replicated,” she said. Ms Hackett advised insureds to start conversation with insurers early about insurance changes. She said risk managers should then notify treasury departments as early as possible about price rises to let them know a cost increase, largely beyond their control, is on the way. However, she said insureds can also explain that as a sophisticated buyer they can save costs by reducing or removing certain areas of cover where they feel their company can absorb the risk. Commercial Risk will be hosting the next Construction Risk Management Conference over two days on 27–28 February 2020, in London. This is the premier construction risk management event in Europe and is supported by Airmic, the IRM and IRMI. To secure your attendance, please visit: www.commercialriskonline.com/event/construction-risk-2020

Risk management vital to securing coverage in hardening construction market

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