It’s more important than ever to build a sustainable future for the construction market. That is the crux of the message delivered by the AXIS Capital construction insurance team during their recent IB Talk podcast, where they emphasised the need for practical, actionable solutions to achieve that sustainable future.
Raj Brar, senior underwriter of delegated and CPE at AXIS Capital, noted that previous sharp exits of capacity in the market left a lot of clients and customers without carriers who could see their project through to the end, and impinged on binders and coverholders who couldn’t get renewals. He believes that this has highlighted the need for a sustainable, profitable market that can survive even the most tumultuous of market cycles.
“Profitability is key,” he said. “Underwriters out there need to know what they are charging, and what coverages they are giving which could translate into loss costs, and be aware of changes in deductibles, changes in coverage and how that can affect their bottom line.”
Steve Cross, unit head of construction at AXIS capital, reiterated how integral a sustainable market is for the end insured because, ultimately, they are the people most inconvenienced by a non-sustainable market. Clients can take advantage of a cheap deal when the market is at a dip, he said, but there is a real cost to that. Cheap deals that were underwritten during very soft market conditions face challenges when it comes to extensions and to finding coverage when several insurers have moved out of the construction space.
“That’s a very tough message for brokers to have to deliver to the insured - for insureds to find that money,” he said. “And for insurers like us, who do some of this midterm replacement, to come on to this risk at a time when there’s a completely different risk profile, really impacts the way that we have to reserve and earn our premium.
“The other point is around education, which is absolutely critical. I think a lot of underwriters now are taught to underwrite very well and there are some really good underwriters out in the market. But I think what has been lost is an understanding of how the money flows through the business, and the implications of some of the decisions that are made at the start of a project and how they manifest over the life of the project and can impact the results [years later].”
Cross emphasised the work done by associations such as the London Engineering Group (LEG) around this education piece, and how this is the key to building a sustainable market in the future. The other way of creating a sustainable account within an insurer is to have a broad and diverse base of income, he said. AXIS has a very broad range of offerings and distribution channels so it doesn’t just focus on projects in excess of $500 million, or only write certain niche areas of business. These days to have a sustainable account means having a broad account that is not focused on any one particular niche area of construction.
The role of the broker in building a sustainable future for the sector is “absolutely critical”, Cross said. As an essential element of the tripartite relationship between the insured, the broker and the insurer, the broker designs the outline of the coverage and has far more interaction with the insured than the insurer usually does. As an extension of this, the broker has a much greater knowledge of what the insured wants and needs to buy.
“Brokers have a big responsibility in transferring the insurance requirements of the insured across to the underwriters,” he said. “And again, education is absolutely key in that. Insurers and [associations such as LEG] all collectively have to take responsibility to ensure that, where we can, we are educating the brokers about coverage and how we as insurers [operate]. So we, as insurers, have to take some of the responsibility of training the brokers, because the brokers are absolutely critical. They are our sales force to the world.”
Adding to that, Anna Woolley, senior underwriter of projects at AXIS Capital, noted that brokers are the ones with direct contact with the clients. They know exactly what kind of information is required, she said, and how to present that to the underwriters in a bid to hopefully get the best terms for their client. Because the information that the underwriters receive is so essential in terms of formulating what coverage and terms are put forward, the role of the broker in building a sustainable future for the market is clear and strong broker relationships should be developed and maintained.
“Communication is key between all parties,” Woolley said, “and that’s open dialogue and managing expectations. Brokers need to manage clients’ expectations of what we can deliver, and engage us early on in the process. And I think that gives everyone the best outcome.”