The impacts of the Great Recession were not kind to producers deeply invested in the construction market. Policy sales to these highly specialized contractors and artisans tanked as projects in both the residential and commercial spaces declined.
Now, however, the industry is moving at a positive, upward clip.
In fact, total US construction starts for 2015 are estimated to rise to $612 billion – an increase of % over the last year, according to the 2015 Dodge Construction Outlook. That’s compared to a 5% increase in 2014 to $564 billion.
All of that spells new opportunities for construction producers. With the exception of electric utilities and manufacturing plant construction – which are projected to decline 9% and 16%, respectively – all markets in the construction sector expect to see increases in building this year.
Leading the pack are five sectors:
1.
Commercial building – 15% increase
2.
Single family housing – 15% increase
3.
Institutional building – 9% increase
4.
Multifamily housing – 9% increase
5.
Public works construction – 5% increase
That positive growth is reflected in demand for appropriate insurance policies. And while that spells good news for producers specializing in the construction sector, every opportunity comes with its own set of challenges.
This is particularly true for construction on multi-unit, buildings. While working with these accounts may seem straightforward to experienced producers, many developers eventually turn apartment units into privately-owned condos. That opens the door for construction defect litigation, and because many policies include exclusions for that type of conversion, insurance fails to kick in.
Instead, riders must be purchased on the policy in the event of a condo conversion. Those can be far and few between, and particularly expensive. As a result, most agents and brokers don’t put in requests for them.
Another potential issue for contractor clients is changes in ISO’s policy form language, which ties any liability the insurance company would be obligated to respond to back to the actual contract between the two parties.
In other words, producers working with carriers who use ISO forms will need to develop and even more in-depth knowledge of the terms of the project contract in order to cover all bases and mind their own E&O exposures.
Specifically, Vernon Howerton, construction practices leader at the firm Gray Reed & McGraw, said the new ISO forms limit coverage to the lesser of the amount stated on the declarations page/policy itself, or the insurance required by the contract.
“If the contract between owner and contractor did not require insurance to cover the event at issue, under the endorsement, there is no coverage—even if the contractor has insurance that would cover the event,” Howerton says.
The good news is that overall rates remain competitive in the construction space, notes Partners Specialty Group President Maureen Caviston.
“I think revenues are up. Business is improving—not dramatically—but it is improving,” Caviston said. “There aren’t dramatic rate increases. It’s a pretty steady market.”
