While most sectors of the economy are getting up, dusting themselves off and getting back to work, increasing evidence suggests that economic uncertainty is holding back the construction industry and—consequently—the construction insurance sector.
While construction insurance has seen a resurgence in recent years, two new reports from Marsh indicate a changing landscape within the industry, leading to much higher coverage rates.
On average, US construction firms paid more for insurance in the first half of 2013, Marsh's "Construction Market Update--First Half of 2013" report revealed. Pricing for contractors general liability, project-specific general liability, umbrella and excess liability, workers compensation and residential construction insurance all saw increases of between 3% and 7%.
The increase was worse for firms with poor loss histories, who largely saw double-digit rate increases, Marsh said.
Michael Anderson, leader of Marsh’s US Construction Practice, put the increases down to underwriters looking to raise prices and ensure profits.
“Underwriters continue to tighten coverage terms and seek rate increases to make up for reduced investment income,” Anderson said. “With a zero interest rate environment, there is no cushion against a poor underwriting decision.”
While this is likely the case, the second Marsh report, "Building Safety and Leadership in the Construction Industry" suggests other factors may also be at play. Specifically, changing demographics within the industry may be fuelling the rate increases experienced by construction firms.
As demand for commercial and new-home construction is picking up, Marsh noted that builders are experiencing a shortage of skilled workers in several US markets. A recent survey from the Associated General Contractors of America, for example, reveals 74% of respondents reported a decrease in skilled trade professionals.
All of that means the industry is seeing an influx of new and inexperienced workers, which drive up safety issues, including fatalities.
According to data from the Bureau of Labor Statistics, construction led the workforce in the number of fatal occupational injuries in 2012, reporting 775 deaths that year. Marsh noted that fall-related fatalities “continue to be a major, yet preventable safety problem,” which may be exacerbated with an inexperienced workforce.
Not all construction lines are seeing their rates shoot skyward due to increased pricing and accidents, however. Marsh noted that premium rates for builders risk insurance generally remained flat in 2013, despite increased demand, while contractors pollution liability rates actually fell 5%.
“The good news for well-managed construction firms is they can still generally find competitive pricing and terms,” Anderson concluded.