UK Construction Insurance Market Update Q3 2022
The Construction industry has been through a tumultuous few years - COVID-19, Brexit and most recently the Ukraine war have caused disruptions with project delays, supply chain issues, price inflation and the availability of labour. Despite these challenges the construction insurance market has fared reasonably well and there is insurance capacity available. This update provides a summary of market trends for the main insurance classes relevant to the construction sector.
Contractors All Risks (CAR) & Liability
There have been no recent withdrawals from the market in terms of insurers willing to write project and annual policies. CAR and Liability rates have only increased marginally in 2022, after more abrupt increases in preceding years, with excesses being little altered.
Insurers have an increased focus on underwriting profitability, a result of several high-profile and costly fires in the last five years. Insurers are also limiting their exposure by introducing a range of restrictions and exclusions– for example cyber and heat conditions.
Despite recent rate increases, the “long tail” nature of CAR policies means that many insurers are still paying claims on policies written during the previous soft market where premiums were unsustainably low – and are therefore yet to return to profitability. In general however, insurers are keen to support client relationships as existing policies expire and they are faced with higher premiums.
Environmental, social and governance (ESG) factors are also firmly in focus with insurers expecting corporate clients to demonstrate concrete plans to meet targets, rather than accepting ambitious-but-vague statements of ambition.
Professional Indemnity Insurance (PI)
The PI market for construction has been very challenging over the last few years, but the resulting premium increases have refreshed the appetite of long standing existing insurers, as well as enticing new entrants into the market. However, while Rate has levelled off in the PI market insurers continue to be cautious on the capacity they are willing to deploy on any given risk, with larger clients expected to take higher deductibles on a co-insurance basis.
Impact of the Building Safety Bill
Significant concerns remain over claims related to the increased costs of remedial schemes to rectify cladding and fire safety defects due to non-compliance with building regulations at the time of construction. Further to the announcement of even more wide ranging changes proposed by the UK Government in the draft Building Safety Bill, including:
- extending retrospectively the limitation period to 30 years for safety defect claims, a further extension of the 15 years previously proposed under sections 1 and 2A of the Defective Premises Act 1972
- consultation with industry in relation to a plan of action to deal with and remediate unsafe cladding on buildings over 11m (not just 18m+)
there are concerns that if these plans are enacted, there will be significant implications for the construction industry and, in turn insurers, both in terms of future costs, and also in terms of dealing with historic fire safety and other building safety issues. On top of this, is the worry among insurers that further substantial claims notifications may arise in this area.
Modern methods of construction
The market is also showing signs of vigilance towards modern methods of construction (MMC), particularly as regards offsite prefabrication, which insurers are cautious about when it comes to underwriting exposure. Fears currently revolve around the speed and quality of such work, as well as potential exposure to systemic failures in prefabricated units requiring rectification on a mass scale.
Cover restrictions
Insurers’ cautious approach is further evidenced by the range of coverage restrictions that are becoming standard parts of policy wordings. Restricted cover or exclusions for both combustible cladding and fire safety claims are now the norm for UK construction firms.
Absolute cyber exclusions have been mandated, following the identification of unintended cyber coverage as a threat to insurer solvency, with insurers citing claims for cyber events that had neither been underwritten nor charged for.
Meanwhile, some insurers are imposing manufacturing and transit clauses to exclude claims related to project delays caused by material or labour shortages, where the manufacturing or delivery of products is undertaken by a third party.
Environmental Impairment Liability (EIL)
Property acquisition and brownfield development in a range of sectors – from domestic holiday parks to e-commerce distribution centres – is booming on the back of COVID-19 restrictions, pushing demand for EIL insurance. EIL insurers are experiencing significant growth in both volume of enquiries and Gross Written Premium (GWP). The increasing prominence of ESG concerns saw both investors and shareholders seek environmental risk protection, while moves toward Net Zero are driving investment in low-carbon energy projects (renewables, energy from waste).
EIL capacity was bolstered last year, with a number of market participants investing in their resources and offering. The only challenge to this is lack of expertise currently available.
How can you help your broker achieve the best possible terms on your behalf?
Start your renewal early
To get the best result it is important that your broker can provide underwriters with all the information they will need to provide their best possible quote, so start the renewal process at an early stage. This will help your broker to work with you to pull together all of the information and documentation required in good time.
Provide all of the documentation your broker requests
The more relevant and up to date information an underwriter has, the more confident they will feel about providing terms and applying discounts where they are warranted.
This might include:
- A current and fully completed renewal Proposal Form
- Supporting information such as specimen contract terms (detailing held harmless provisions or waivers, limitation of liability etc).
- An overview of your risk management
- Company Report and accounts
- Fully confirmed claims experience, ideally from the prior insurers
- For any material claims or reserves, provide details of any risk improvements implemented.
Decide on a clear renewal strategy
Select a broker with sector expertise and experience (construction expertise is at the core of Lonmar’s broking offerings). Using multiple brokers will work against you and that can occur inadvertently when numerous MGAs are approached – insurers are unlikely to focus on a case that has been sent in by four different brokers if they can work exclusively with one broker on another opportunity.
This update was prepared by Lonmar Global Risks, GRP’s Lloyds and London insurance market specialist which supports GRP Group brokers with the placement of large and complex risks.