Why the Insurance Market is Hardening detail

Why the Insurance Market is Hardening

06/14/2021 Written by: Gary Semmer

The construction insurance market has been firming up for the past few years with several factors driving this change. Some of those determining factors have been higher general liability jury awards / settlements, auto liability awards, and property / equipment climate related claims. The increase in awards is a result of many factors from construction injuries and distracted driving to hurricanes, tornadoes, wildfires, and other climate events. These circumstances have caused carriers to change the way they write policies. It has resulted in restrictions around types of coverage; reducing their capacity for higher umbrella / excess liability limits; and increased pricing on general liability, business auto, excess liability, and other lines of coverage.

Based on industry data, we are seeing general liability rates increase around 8-12%. Other areas are increasing as well. This includes business auto around 10-15%, umbrella / excess at 15-20%, employment practices liability around 12-15%, and cyber liability 10-12%. Each of these increases can vary though depending on type of contractor, size and scope of operations, geographic area, and individual claim history.

While external factors cannot be controlled, there are ways to mitigate against market conditions. Keeping your “Total Cost of Risk” (TCOR) down to .0075 - 1.5% will help against external factors and maintain a competitive advantage. The TCOR is premiums + claims + deductibles + risk management expenses / construction revenues.

Below are a few “best practices” of a risk management program that will help achieve those results.

  1. Safety Program / OSHA Compliance: Review each facet of the safety program with the Safety Director including safety manual, safety orientation, safety training, and OSHA compliance. If a third party is used, consider conducting a mock OSHA audit to prepare for a real audit. Lastly, share this information with the insurance carrier’s loss / risk control consultant to show proof that steps are being taken to mitigate risk.
  2. Claims Management: Review the past five years of losses / claims history for trends in frequency and severity of claims and determine a plan to avoid these in the future. Additionally, look for any older claims that may be outstanding and any open reserves. Claims should be closed out as soon as possible. Review any open reserves to ensure they are not overstated as well as the Workers Compensation Experience Modification Rating (EMR) worksheet to make sure the payrolls and incurred losses are properly stated for accuracy of the EMR.
  3. Contract Compliance: Set up a standard contract review process. This process should make sure the insurance program aligns with the insurance requirements within the contracts that have been signed. This can avoid any surprises down the line and ensure additional costs are not incurred.
  4. Renewal Preparation: Completing the previous steps throughout the year will provide the most favorable position when it is time to start the renewal process. Once it is a few months before your renewal date, there will be more concrete steps to complete:
  • First is a meeting with your broker to discuss any insurance updates or changes (payrolls, sub-work, equipment and vehicle changes, etc.). This is also the time to discuss updates on safety / OSHA compliance, open claims, and changes to the risk management program. Anything a carrier underwriter will want to know should be discussed.
  • Based on market conditions, the next step is to discuss if seeking a new proposal from a carrier makes sense or if the current carrier will likely renew. If it appears the current carrier will restrict coverage, require higher deductibles or retentions, or increase rates (outside of the normal ranges), then it may be beneficial to seek new proposals from a few carriers. To have ample time for evaluation, include a deadline of three weeks prior to renewal when sending the submissions to the carriers.
  • If seeking new proposals is the avenue that makes the most sense, make sure your broker has market access to complete this task. If not, it will be time to search for a new broker with greater access in the construction marketplace. Generally, it is recommended to interview no more than three brokers and then determine which firm is “best” suited based on their ability to help manage risk and obtain the best terms possible in the marketplace.

5. Alternative Marketplace: In going through the renewal process there could be some discoveries along the way about what the business can handle. For example, it may be discovered that taking on more risk by securing higher deductibles or retentions is feasible. Conversely, it may be found that having a construction captive feasibility study performed may be the best option. This will determine how a group or single cell captive can benefit the business.

At AssuredPartners, we represent thousands of construction clients nationwide with 190 offices to serve you.  Contact our experienced team of construction professionals to help you achieve your lowest possible Total Cost of Risk (TCOR) and build your business.

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