In the first edition of the Construction Power Panel, Insurance Business gathers insights from three influential industry executives: Bill Creedon, global head of construction at Willis Towers Watson; Danette Beck, national construction practice leader at USI Insurance Services, and Jim Gloriod, president and CEO, construction services group – US at Aon. Their discussion centers on the recent challenges faced by the industry, particularly the impact of COVID-19 on business; how underwriters’ approach to risk has changed; and the best practices that brokers can use to assist their clients.
Despite the delays caused by the pandemic, Creedon said that the construction industry never stopped working during this period. Being “known for its creativity and [ability] to adapt,” the industry had been able to manage its projects and costs by maintaining certain protocols. From an insurance perspective, the pandemic affected the planned program extensions of certain brokers and their client partners. Some areas that slowed down were office and commercial spaces and hotels, but health care and data centers grew substantially.
Beck agreed with Creedon’s view, saying that in addition to coping with slowdowns and supply chain disruptions, contractors have had to contend with the “availability of labor and materials in order to finish the projects on time”. Contractors had to find good workers depending upon the status and location of their projects.
Gloriod, meanwhile, cited vaccine mandates by private employers as a labor-related concern that affects unvaccinated construction workers. A matter that employers have to figure out is “how [to] certify whether or not folks are vaccinated [or] unvaccinated, how [to] deal with that with owners and how [to] avoid delays and have contractual protections,” he said.
Regarding how underwriters’ approach to risk has changed in light of the pandemic and the hardening market, a major consideration is differentiating between the experience ratings of accounts and between primary and excess placements.
Beck said this issue highlights the importance not only of telling a story to the marketplace but of “having the data behind the story that is going to determine whether or not [the risk is] perceived as better-than-average, or average, or less-than-average”.
Given the large remaining capacity to place business, underwriters have to be able to stand out from the competition by being “detailed across all lines of business on what [they are] doing from an operational standpoint. The difference from my perspective from primary and excess in the old days, you finish your primary placement first and then you go into the umbrella and excess marketplace to complete the tower based upon the needs and wants of your clients,” she said.
Gloriod agreed about the need to show the underwriters why the risk profile of a certain business is better on the basis of past and present performance and considering the need to mitigate or prevent future losses for clients. While he has observed intense competition in the primary programs, he said that the excess markets necessitate building relationships, especially given the size and profile of some accounts. He pointed out that at the highest end of the market, the largest clients “are looking to buy [more than] $500 million in excess limits. There still is a capacity crunch, and we need more capacity to come into the market at those highest levels of excess.”
From Creedon’s point of view, aside from separating the great risks from the good ones, loss control and claims management results are also important. Another shift in the market is the tendency of underwriters to want more direct interaction with executives or risk managers so they will know their clients better.
In such a complex marketplace, brokers have to come up with the best practices to help their clients. Creedon emphasized the importance of communication and data gathering from job sites, as well as ensuring that these are “communicated properly to the underwriters so that they’re hearing the real risk … and [looking at them] differently with all these technologies that are coming off job sites.” He said this factor is likely to change the market in the future.
Gloriod backed up Creedon and Beck’s views on the importance of communication early in the relationship with clients. Due to the presence of a two-tier market, other key consideration in this line of coverage is knowing the underwriters that the clients are going to meet with. Certain questions also arise in relation to data and risk profiles: “How do they take their data? How do they take their operations and how do they lay that out for their best possible story to get the best possible result?” Another effective practice, especially for accounts with previous claims for construction defects, is making sure that quality control professionals are working closely with underwriters in implementing plans.
In addition to societal issues, such as cyber threats and natural catastrophes that affect construction insurance, another factor that influences the umbrella market is the presence of drivers who encounter road accidents while delivering materials, thereby increasing the repair cost of vehicles, said Beck. Litigation, specifically the growing number of court cases and the awarding of very large settlements to injured parties, is also a factor related to insurance claims and the marketplace.
Other issues that may have an impact on construction insurance are an aging workforce and mental health exacerbated by the pandemic, said Creedon. Inflation and labor shortages, which lead to higher costs, are factors cited by Gloriod. Nevertheless, the panelists agreed that the market is in a good competitive position but needs to stay ahead of project extensions. From the standpoint of both construction and insurance, Beck stressed the importance of ensuring operational efficiency when dealing with project extensions as well as doing a “health and wellness check from a financial standpoint” so that companies can adapt well to market changes.