Softer times ahead for London construction insurance market

Risk managers in the construction sector can expect a less stressful time at coming renewals in the London market, according to broker Miller.

Miller’s London construction sector experts have provided a market review of the first quarter of 2024 across construction lines, professional indemnity, D&O and surety, and say that the market has peaked and is about to soften.

Miller said that 2023 saw continued rate stabilisation, with growing competition in the market and greater appetite to grow books of business.

It noted that many insurers experienced positive underwriting results in 2023 stemming from the healthy rates available in the hard market, which suggests that prices have now reached a level to return profitability to the market.

“With new carriers entering the construction market, it is anticipated that rates have now reached their peak, with the potential for reductions drawing nearer on more standard construction projects. More challenging construction types, such as heavy civils, wet risks or engineering projects, are less likely to experience rate reductions just yet,” said the broker.

“There is also growing competition on annual business, with incumbent markets more frequently under attack by competitors, which is in hand driving down rates. This is also reflected in the construction casualty market with pricing more competitive than in recent years,” added the Miller experts.

The broker said that 2023 did not present any significant changes in appetite, with most insurers still prepared to write a wide variety of projects. “There seems to be a focus on bolstering underwriting resources amongst multiple carriers to cater for the ever-substantial volume of enquiries being placed into the London market,” said Miller.

Natural catastrophe remains a key consideration for insurers on international placements, according to the broker. “Modelling nat cat exposures is a key mechanism of the underwriting process and influences appetite and deployable capacity on risks that are particularly exposed. Some insurers are prepared to consider ‘Single Cat Peril’ solutions on both a primary and excess of loss basis, which is presenting clients with alternative solutions where full nat cat capacity is not available domestically,” it explained.

Nat cat is also forcing insurers to think outside of the box, which is apparent in the parametric market, said the broker. “This is where insurers are offering predefined levels of indemnity that are immediately triggered on occurrence of an insured nat cat event, depending on the level of indemnity purchased,” it said.

The broker said that there is appetite in the market to support mid-term projects, either where a contractor has become insolvent and left the developer stranded with no cover, or if the domestic market is not prepared to extend beyond the original policy expiry date.

“Terms and conditions are generally more stringent from the outset, but insurers are often prepared to engage with clients to risk manage their exposures for the remainder of the project,” said the Miller construction team.

Capacity is now the “strongest” it has been since the hard market forced several carriers to run off their construction books, said Miller. This is encouraging for construction sector risk managers and suggests that the market could be at the “tip of the curve” with competition growing, it said.

“This is particularly evident in Lloyd’s with several syndicates arriving in construction with strong growth targets and broad territorial appetites. Aviva’s recent acquisition of Probitas is also positive news and poses a statement of intent from Lloyd’s in bringing large composite insurers into the building,” said Miller.

“Capacity for timber frame projects is still restricted, but new capacity in the market may well make completing these placements less challenging in the future. The larger timber frame developments placed in the open market still often require domestic lead terms for the London market to deploy capacity behind,” added the broker.

The 5th Construction Risk Management Conference (Europe) will take place in London on 23rd & 24th April. This is now the largest gathering of construction project owners, contractors, sub-contractors and insurance markets in Europe. For more information please visit https://events.commercialriskonline.com/CRM-Europe-24.