Construction insurance's "million-dollar question"

Expert chats about the challenges facing the sector

Construction insurance's "million-dollar question"

Construction & Engineering

By Ryan Smith

The construction sector has faced many challenges over the past few years, from increasing mass timber use to the impact of rising interest rates on costs.

Insurance Business recently caught up with Shantelle Cabir (pictured), senior vice president and business insurance broker at California-based Newfront, to chat about the hurdles the sector faces and the outlook for construction insurance.

IB: What do you think is the biggest challenge facing brokers in the construction space at the moment?

Shantelle Cabir: One significant challenge for construction-focused brokers is the rising cost of property and auto insurance, leading to an increasingly hard market. Many clients are experiencing these costs affecting their bottom line, requiring brokers to navigate and find innovative solutions. Therefore, it's crucial to work with a broker with extensive industry reach and a strong ability to creatively structure insurance programs.

IB: That makes sense. No matter what business you’re in, you’ve probably got to drive somewhere and you need to have a roof over your head.

Cabir: Certainly, the impact of increasing rates is substantial, both in commercial and personal sectors, with California being notably affected. Even individuals with pristine records are experiencing rate hikes. This trend is exacerbated by legislative factors, posing challenges for many. In construction, the availability of builders' risk coverage is also being affected as we are continuously seeing carriers raise their minimums or leave the California entirely. This poses difficulties, especially for smaller contractors, who struggle to secure affordable coverage amidst rising costs.

IB: Is builders’ risk facing issues in California for similar reasons as property insurance – because of climate-related risks, wildfires, things like that?

Cabir: Builders' risk insurance in California presents distinct challenges, not solely attributable to climate-related risks like wildfires. Profitability concerns drive carriers' decisions, particularly regarding smaller projects where margins are slimmer. Additionally, emerging risks such as those stemming from homelessness contribute to insurers' caution. Contractors working with wood frames, operating in wildfire-prone regions, face heightened scrutiny. Legislative adjustments are needed to ensure insurers can price policies adequately, prompting some carriers to exit the market in search of more favorable conditions elsewhere.

IB: That brings up a good question: there’s got to be a balance between insurers being able to turn a profit and the people that are insured and being able to afford the insurance. How do you find that balance?

Cabir: I mean, that’s, that’s the million-dollar question. The current situation poses a significant conundrum. It underscores the pressing need for legislative reforms to address the challenges at hand. Without substantive changes, the trend of insurance companies exiting California will persist, further narrowing options for insurance purchasers in the marketplace.

IB: What lines do you see thriving in 2024, and is construction going to be one of them? Or is that still going to face some challenges that might keep it subdued?

Cabir: Different sectors within the construction industry are experiencing varied trajectories. Industrial construction continues to show promising growth, whereas the commercial and residential sectors face some significant draw backs, largely due to challenges in securing capital amidst high interest rates. We are seeing many projects being delayed to the end of 2024 or even the start of 2025. Many businesses are just looking to maintain their workforce and break even this year. The current election year further compounds uncertainties, with many executives adopting a cautious approach, awaiting political developments. However, irrespective of which side wins the election, I believe resilient companies with solid financial foundations, willingness to be flexible, and strategic planning are poised to weather these challenges.

IB: What are some priorities you’d like to see the brokerage space or the construction insurance sector focus on right now?

Cabir: I would like to see a greater emphasis on risk management, recognizing that its importance often gets diluted into a mere checkbox exercise for compliance purposes. True risk management comes from integration into the organizational culture, extending from top-level management to frontline workers. A pervasive commitment to safety and risk mitigation enhances the organization's overall performance. In the dynamic landscape of construction, achieving this integration can be very challenging, especially amidst employee turnover and growth trajectories. However, these challenges underscore the importance of investing in specialized expertise and leveraging collaborative partnerships through your broker and insurance carrier to enhance risk management practices throughout the organization.

IB: So you think brokers should proactively work with the organizations that they serve to make sure their risk management strategies are sound?

Cabir: As a company, it’s crucial to collaborate with a brokerage that believes in the structure of investing in risk management within their organization. While there are brokerages rely on third-party vendors for risk management, this approach often lacks full commitment.

At Newfront, we differentiate ourselves by deploying dedicated, on-site risk managers who are Certified Safety Professionals (CSP). They work closely with our internal claims team and service teams to ensure comprehensive client representation and establish structured risk management protocols within the organization. This hands-on approach is especially vital in industries like construction, where practical experience is paramount. Having expert guidance throughout the process ensures optimal service delivery and facilitates informed decision-making for our clients.

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