Construction sector challenges for brokers

Underwriters want to know more about risks

Construction sector challenges for brokers

Construction & Engineering

By Daniel Wood

Australia’s building and construction sector is facing a number of contrasting challenges which are impacting the insurance space.

According to the Australian Constructors Association (ACA), the industry is facing a worker shortage of more than 200,000.  

Meanwhile, the residential segment of the market is facing a big drop in demand. The Housing Industry Association’s (HIA) Outlook Report, released this week, expects the number of houses built this year to decline to its lowest level in a decade.

Insolvencies in the sector are up. Figures from the Australian Securities and Investments Commission (ASIC), quoted in an Australian Financial Review (AFR) report, show that construction industry insolvencies rose by nearly 40% in the three months to December compared to the previous quarter. The AFR attributed the bankruptcies to rising costs, labour issues and supply chain struggles.

Insurers are demanding more information

In a recent interview with Insurance Business, John Whiteside (pictured above), a client manager with Gallagher, said construction contracts are now a tricky area for brokers.

“I think construction contract works are starting to get pretty difficult in some of the more chunky projects,” said Whiteside. “We’re getting a lot of requests [from insurers] for much more detailed information.”

In the construction insurance space, he said, about five years ago brokers would be able to secure coverage for customers by submitting a proposal to insurers with just some details of the project. Today, said Whiteside, those same insurers are more concerned about better understanding the risk they are underwriting.

“Underwriters are starting to really press for a lot more information around underwriting the risk rather than just throwing a premium out there,” he said. “Now they’re actually wanting a lot more information around the client and the ability to service the project and complete the project.”

Today, getting coverage is more work for brokers and clients

When IB suggested that this must increase a broker’s workload, Whiteside agreed.

“Yes, for us and also the client,” he said. “You’ve got a client who just wants to go and get on with the project but they need the insurance - and while they understand the value of the insurance, of course, now, you’re going back to them and for a similar kind of project you’re asking for probably double the amount of information.”

Whiteside said part of the issue for brokers is that construction customers have come to expect an easy process in terms of getting insurance coverages. He said, to some degree, brokers have created that expectation.

Now that the market conditions are different, brokers have an educational job on their hands.

“So for the client, it’s educating them about why the information is needed and how it’s going to benefit them in the long run with regards to coverage and premium,” he said. “We have to get the information from them even when they are obviously busy with the project.”

Access to more capacity helps

Whiteside’s own firm, Professional Insurance Solutions, was recently acquired by Gallagher. He said one of the motivations behind selling his firm to the brokerage giant was the prospect of access to more coverage options for clients.

“The model that I came from was fantastic and they basically left you alone to do your own thing,” said Whiteside. “That’s all very well and good but it’s great having backing and support from a larger organization for that buying capacity.”

For 15 years, Whiteside was a jack of all trades.

“I was chief technology officer, I was HR manager, I was accountant and a broker,” he said. “In a small business those things are great and it’s very positive to be left alone and to manage your own business but it’s also great, after 15 years, to have that support now.”

He said that support makes it easier for him and his team to focus on being brokers and looking after clients’ insurance needs.

There are other advantages from joining a big brokerage that could help his construction clients.

“Just having access to the [Gallagher] claims team as well,” said Whiteside. “We would manage all their claims - and we will still be involved in all our claims - but we will now have these specialists.”

For example, he said, in professional indemnity (PI) he can now access Gallagher’s team of lawyers.

“We didn’t have that access previously, so just to have that in-house is a real comfort,” he said.

Economic storm clouds, including the rising cost-of-living and inflation, are impacting the construction industry but Whiteside said they didn’t really affect his decision to sell his brokerage.

“I started the business with two young children and a wife who was seven months pregnant and left a really well-paying job,” he said.

It was January 2008. The global financial crisis hit a few months later.

“So the economic conditions and the hard market weren’t really a major concern,” said Whiteside. “If you can look after your clients, help them through, work with them on their insurance needs and tailor the insurance to their budget, but also their risk, then you’ll get through a hard market.”

Are you a broker in the construction sector? What are your challenges? Please tell us below.

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