Construction Power Panel – how can brokers help their clients?
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, make up the first ever Construction Power Panel. They discuss the impact COVID has had on the marketplace, how underwriters’ approach to risk has changed, and the best practices brokers can use to help their clients.
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Paul: [00:00:14] Hello everyone, and welcome to the latest edition of Insurance Business TV. A construction insurance power panel. Here we are venturing bravely into 2022 and looking back on what was an incredibly taxing year with COVID challenges, supply chain issues and a host of challenges thrown at brokers, underwriters and insurers alike. But it's a new year, so where do we go from here? If you're looking to build your construction insurance business, lay the foundations of success or cement your future plans, I promise the puns end here. This is the place for you. Why? Because we've gathered some of the biggest names across the construction insurance market to offer their insights on the current landscape. So who are they? I'm delighted to introduce Jim Gloriod, president and CEO of the Construction Services Group U.S. At Aon. Danette Beck, who is the national construction practice leader for USI Insurance Services. And Bill Creedon, global head of construction at Willis Towers Watson. So this incredible group will be meeting on a regular basis with a few special guests to discuss the latest developments in the construction insurance markets as the year rolls on. But for now, let's begin with the unavoidable topic that is COVID. Some concerns have been lifted, of course, with the vaccine rollouts being quite successful. But with new variants emerging, it's become vital to stay on course with COVID 19 compliance and to maintain safe working conditions. So I want to ask each of you, how do you assess the current landscape in relation to COVID and what has been the biggest impact it's had on business? And how do you see things moving forward in this new year? Bill, I'm going to come to you first.
Bill: [00:02:03] Thanks, Paul. Yeah, it's the COVID. We've been now, what, almost three years that we've been dealing with this. And, you know, at first, let's remember, construction, our industry never really stopped. They continued. They kept going. They they were essential. It did cause maybe some delays that were put out there. And that that's going to tie in to that here in a second. But around that, they never stopped working. And so they were it's an industry that's known for its creativity and it's being able to adapt. And they did, they they put in the protocols that are in place. Those are still in place today. They're almost becoming that's a given these project sites. They're doing all the normal controls that they should. I think they've managed COVID. I think they've brought it to where it's it's just it's part of it. And so when they're when they first were in it, they were getting hit with some extra costs, maybe around testing or, you know, having all that available at a job site. But they've evolved with that and they've been able to look at it and say, Hey, we've got that set and they've got the costs now that they can build into their project costs and do it without having kind of a heavy road margin. I think at the same time we talked about that it didn't stop projects, it slowed some down, it pushed them out. But what that also did is it created potential delays. If you put that to an insurance perspective, it is also hit on where brokers and their client partners are have been looking at putting together extensions on project programs. And that also has become a little bit of an issue for the industry underwriters looking at that and having a new opportunity to look back at a project, it's just all come into play in that regard. I think the the other thing for the industry, it's really dependent upon what you focused on. So if you look at if you were focusing on office space or commercial or hotels, that space has been slowed. With COVID, it is definitely hit a speed bump. Conversely, if you're a contractor and you're focusing on health care or data centres or of the like, those have seen an incredible growth. At the same time that that has to be put into play. Also as brokers looking at that and how do they adjust their programs accordingly and how does the market you've got to get them in front of different markets to make certain that that's being you know, they're giving the benefit of the overall not just getting brought into the COVID, you know, play.
Paul: [00:04:40] Thank you, Bill. A lot clearly a lot of positives and negatives to take Danette. I'll swing things over to you. Do you see things similarly?
Danette: [00:04:50] I do. And I'm going to I'm going to continue on that that thread that bill started with that in addition to maybe potentially some slowdowns from a project standpoint, what we're also seeing is internally, contractors are having to take a look at their labor force and where is it coming from. And and depending upon what type of jurisdiction they're in statewide of where their projects are, of finding good labor in order to finish those projects. Coupled with that is supply chain issues. And so I think the two biggest issues that are happening right now from a contractor standpoint is availability of labor and availability of materials in order to finish the projects on time. We talk a lot about having grace. Typically in contracts, there's not a lot of grace involved. That's very much it's a binary, right? You perform to the duties of the contract, you finish on time and there's certain accommodations that can be made for delays based upon losses. So now we're asking our clients to be better partners with each other and to make sure that they get ahead of situations. So if there is a supply chain issue or if there is a labor issue that they're talking about it with all the project participants to ensure that the project gets done in the manner that they need to. So those are two additional things that we are looking at from an overall landscape situation in order to help our clients manage their business.
Paul: [00:06:14] Thank you, Danette. And you mentioned supply chain issues there. I have a feeling that that will be coming up multiple times in this conversation. Let's swing things over to Jim now. Jim, what's your overview of the marketplace?
Jim: [00:06:26] So just to build on what what Bill and Danette had to say, I think there's one other issue that relates to labor, which is the vaccine mandates either from private employers. So some of their health care clients, some of our construction clients, their health care clients are requiring that any construction workers that come in to their sites are vaccinated, as well as the federal government mandate, which is currently in the court system, which will be enforced by OSHA. So they're trying to struggle and figure out those issues because like the rest of the country, they have portions of their labor force which are unvaccinated. So they're working through how do they certify whether or not folks are vaccinated, unvaccinated, how do they deal with that with owners and how do they avoid delays and have contractual protections around that as Danette laid out earlier.
Paul: [00:07:24] Thank you, Jim. And I'd love to just get all of your perspectives really on as well on how underwriters approach to risk has changed, not just in light of COVID, of course, but also with the hardening market. Do you think that they're now clearly differentiating between accounts with good loss experience and those without and and what are the differences between primary and excess placements as well? Danette, I'll come to you for this.
Danette: [00:07:51] Thanks, Paul. That's a great question. We've been talking for years around contractors. You know, it used to be you got to tell your story. Right. And you the you have to tell your story to the marketplace. But I don't think it's any longer that it's just telling your story. It's having the data behind the story that is going to determine whether or not you're perceived as a better than average risk or average or less than average risk. And we don't have a lack of capacity in the marketplace. There's still plenty of capacity to place business. But those underwriters and we've been saying this for years, I know my my fellow colleagues here would say the same is you've got to be able to stand out from the pack. But now more than ever, you have to have the data behind it in order to stand out before the pack. And the underwriters are getting really, really detailed across all lines of business on what you're doing from an operational standpoint to ensure that you're doing what you say you're doing. And I think that, you know, the difference from my perspective from primary and access in the old days, you finish your primary placement first and then you go into the umbrella and access marketplace to complete the tower based upon the needs and wants of your clients. But the umbrella market has been hit, and we're going to go through in a few minutes some of the intervening factors of what's going on in the umbrella marketplace that's doing that. But because of that, you have to get to the umbrella markets quicker and allow for more time in order to make those placements and not allow for the renewal to go to the very last minute and deliver some pretty dramatic news if there are some changes within the pricing and or terms and conditions of the market.
Paul: [00:09:33] Thank you, Danette. And I love that point about standing out from the crowd. Jim, how do you see things shaping up?
Jim: [00:09:40] I think that there's definitely competition for the best risks. And as Danette said, not only do you have to tell your story, but you have to prove your story. Me being from the Show Me State here in Missouri, you have to show the underwriters why your risk is better, both from what you're doing as well as what's happened to you in the past and your future to curtail your future plans to curtail losses or prevent losses for those clients. We're seeing great competition on the primary programs. On the excess market, I agree with Danette. You have to start early. But the other thing is you have to have relationships as a client with those excess markets. And if you flip back the clock, maybe ten years ago, that was more of a transactional purchase for most clients. Now it's more of a relationship purchase and depending upon the size and profile of the account, depends on how high up the tower you need to go with those relationships. And then I think at the highest ends of the market for our largest clients that are looking to buy an excess of $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.
Paul: [00:10:55] Thank you, Jim. So a capacity crunch. Is that something you're seeing as well? Bill.
Bill: [00:11:00] Yeah. I'll start where Jim left off and maybe work backwards a little bit. Yeah, definitely. On the capacity crunch because that used to be and Jim mentioned it was transactional. It used to be you'd work that primary, you'd start saying, okay, I'm up to a certain level now. I want to just build up and you'd get 25, $50 Million layers. Now, those same carriers don't want that capacity. They're trying to restrict their capacity. So where you may have dealt with for excess carriers, you may deal with eight excess carriers, and it just makes it more complicated. But you also have to get all the terms and conditions accurate and that can create other issues on it. I'm going to I'll bounce back down now to the primary in the industry itself. And I think we're all saying the same thing. But you're dealing with a two tier marketplace right now and where the underwriters certainly have the ability to pick and choose. And as we all say, you need to set yourself apart on that. And so they're looking for those. They're looking to separate the great risks, even from the good ones. And those are the ones that they're going to put their investment on, are those great ones? But as Danette said, you have to show it and you have to make certain that you're putting together you say that you're doing these things. Show me that the results prove it. And so you do want to take your loss control efforts or your claims management efforts. Have they actually resulted in loss experience that that supports what you're saying is happening? And if you can do that, that's great. I think the other piece that you're seeing with the change is a shift in wanting more direct interaction. Underwriters have always wanted direct interaction with the clients, but now they want to sit with the virtual aspect, lets them sit with the CEO, CFO, risk manager, all the line of executives. They want to hear from them as well that this is the mantra of the of the client. This is the culture that's embedded and this is where we're going to make us the best in class. That's what they're after. And that's where it'll attract better attention. And as Jim said, it's proving to be very good results if you can show you're hitting on all those points.
Paul: [00:13:05] Thank you, Bill. I like that we've sort of ended that overview with a little bit of optimism. But let's move on from the from the overview and let's really focus in on on sort of best practices if we can. And I want to pick your brains. Just give us some some insight into the best practices that brokers can use to help their clients to to navigate this very, very complex marketplace. Bill, I'll stick with you for now.
Bill: [00:13:30] You know, best practices. Obviously, I'm going to hit the easy ones. But the communications, they have to start in the days of coming in at the last minute. They just don't it won't work and it won't you won't come out with the very best product. I think the the the other piece around it, I think data, I think everybody has to be looking at data and making certain that you're taking everything that's coming off job sites. You're making certain that you're looking at it and not just take information, but what's what are the insights around that? And then making certain that's getting communicated properly to the underwriters so that they're hearing the real the real risk that they're looking at and evaluating and why it should be looked at differently with all these technologies that are coming off job sites. That truly is going to be and we'll probably talk later even. But that's truly going to be something in the future that's going to change change our market. And that is a best practice that we need to be doing.
Paul: [00:14:31] Thank you, Bill. Great way to kick us off, Jim. What tips on best practices do you have?
Jim: [00:14:37] I think, Bill, just to build on what Bill said. Communication is key. And Danette brought it up earlier around. You need to start early. And I think the other thing you need to do is, as Bill said, there's kind of a two tier market out there right now is knowing the markets, knowing what underwriters your clients are going to meet with and then preparing the client on. These are the hot buttons for this particular market or for this particular line of coverage. And then 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? So really working with the clients to build up the story, the data that presents them, and the risk and the best profile. And so if they have an issue with construction defect claims in the past, making sure that the person in charge of quality is getting in front of the underwriters and making sure that their new plan is being laid out to the underwriter. So getting very granular, very specific, I think is important to make sure that you're positioned as well as possible in this market.
Paul: [00:15:42] Thank you, Jim. Common theme running through this around communication Danette are you going to sort of continue that theme?
Danette: [00:15:49] I will. And I like to say early and often that, you know, the process for purchasing insurance used to be a very transactional type of arrangement, data exposure when we talk about data. What Bill, Jim and I are talking about is very different than what some I think some people may think data is meaning exposure. So payroll by postcode fleet, contrast equipment, that is data, but that's exposure and it's a very static and it's there there's not a lot to it. And so the old days where you had old days that in the past you would send data to underwriters, they would take a look at it, put pricing and terms and conditions together, and that's a very sterile way of doing insurance. So what Jim, Bill and I are talking about in the early and often part of it is the so what? So you've got this exposure information, including losses. What does it say? And if it tells that story about what you're doing and how you're continuing from an operational excellence standpoint, that is what is going to change the picture of how an underwriter is going to view, because otherwise what they're going to do is they're going to look at the information and without any context about what's going on with it, they're going to make certain decisions and opinions about the company without any without anything else that goes along with it. So that's why we say early and often, because the the credibility of the data as well as the story that goes along with it, is what's going to determine the outcome. I also like to say is the early and often with your broker partner is important because you want to have the answers to the test before you get the test. And so going in with knowledge, going into discussions with underwriters, that's very transparent about what your ask is is going to get a better it's going to elicit a better result versus relying on the underwriter to make a determination based upon what they think your client should have from a program structure standpoint in terms and conditions standpoint. So having those discussions early and often internally as well as externally, and then I'm going to ask Jim and Bill, I can't remember which one of you said it, but having the the direct connection between your carrier partner and your client partner is critical that making sure that those relationships are intact because we're navigating an uncertain time right now. So having the ability of pivoting, adapting, adjusting is more critical now than it was before. And so having those strong relationships is going to help be able to move move us through through this pandemic and beyond.
Paul: [00:18:24] Thank you, Danette. That's fantastic advice. And while I'm picking your brains, everybody, of course, we've talked a lot about COVID. We've talked a lot about the hardening market. But there are a lot of societal trends, whether they range from cyber to catastrophes to this volatile supply chains that are that are having a big influence on the construction insurance industry. So how are you going about addressing those issues, Danette? I'll keep with you for now.
Danette: [00:18:52] I'm going to hit on a couple to start and we'll we'll continue around. So the the two that I wanted to touch on, which we talked about it in an earlier question around the umbrella market and what's happening there. And there's a couple of intervening factors that are impacting the umbrella market outside of the natural catastrophes and wildfires that are going on that are impacting the marketplace from a society standpoint. And one of them is, we talked about it, the supply chain, and that includes the availability of drivers. And what's happening is that there are now more drivers on the road that are either delivering materials or working for our contractors that are not necessarily good at driving, that they are causing more accidents coupled with the vehicles that are on the road today are much more technologically advanced. And so the cost to repair those vehicles are higher than what they were in the past as well. So it's causing those auto claims to go up, which is impacting the umbrella marketplace. Coupled with that is what's happening from a litigation standpoint. And there's three factors that have been really impacting the market over the last several years, not necessarily just because of COVID. One is more secular judgments. So juries that are awarding very large judgments to claimants that they are calling victims and they are looking at corporations, that they should be funding larger settlements for people that get injured. On top of that, there is the social inflation, and we've seen it run rampant over the last 18 months in various forms and across the United States that is impacting the umbrella market. And then finally, third party litigation financing. That is a phenomenon that is not new. It's been around for several years now, but the number of court cases that are actually going to adjudication are increasing because of the funding of the the the funding of the litigation. So those are two that I thought I would bring up first as from a societal standpoint that are impacting the marketplace right now.
Paul: [00:21:00] Thank you. I mean, I think those those issues surrounding litigation are having a massive impact right across the insurance industry, of course. Bill, which which issues would you want to zoom in on?
Bill: [00:21:12] You know, all of Danettes are spot on. I think the I build off a couple of them. One of them is you talk about needing drivers. You can look at the industry even bigger. We have an aging workforce and the aging workforce is many were were looking to retirement, thinking about it. And then with the onset of COVID, it's driven you know, it's been an accelerant on that. And what that's doing is it's taking a lot of the industry knowledge in it's pushing it out quicker than it had. At the same time, you have a gap on education or sharing of that experience and the difficulty of bringing new people into the industry. And so that's coming at an interesting time because with the infrastructure bill, with a lot of opportunities sitting in front of us, it's going to be it's going to be something that we're all going to need to address, but definitely have seen that as a trend that we're sitting in front of. The other piece that ties in to that mental health and mental wellbeing, it is a already a stressor in the construction industry. It construction is one of the highest suicide rates of any industry. That has also been exacerbated as we've dealt with COVID. A lot of we're going to see and I hope we're all a part of it, more increased programs on awareness, opening that up so that we can get help for people. You're already seeing new technologies being used around that, whether it be from just texting and getting immediate help or assistance for your mental health. That's going to be something that I think you're going to see come out a lot more here in the near term.
Paul: [00:22:52] Thank you, Bill. So I think labor issues have clearly been a running theme here. Jim, what would you focus on?
Jim: [00:23:00] I would focus on something that's related to both what Danette and Bill both hit on, which is inflation. So supply chain issues overall from COVID. Labor shortages across all industries, but especially construction. With the infrastructure bill now being out there, along with already a pretty robust market, especially in certain sectors. There's a real concern around inflation. And as Danette pointed out earlier client there's contract certainty when a contractor enters into a contract with an owner. And so how do how do they prepare for those inflationary factors? And then as they're bidding these projects, is those costs continue to increase? Do people delay projects? So whereas they might have a robust pipeline for 22 and 23 on expected project starts, those actually might be pulled back on a bit. So everybody's trying to figure that out. Right now. Contractors are working with owners. Contractors are working with us to say what can we do around our cost structure, etc., to prepare for inflation in the future?
Bill: [00:24:07] I think one more. I think we'd all be remiss if we didn't mention at least the issues around cyber. It's a big issue in the industry for both insurance and for the contractors, but with all you've heard us all mention all these different technologies on job sites, that's also opening up greater exposures to cyber cyber threats for contractors, for projects. That's going to be something, too, that we're all going to be working around in the industry.
Danette: [00:24:35] I couldn't agree more, Bill, because I think in the past that contractors may not have felt that they had a cyber issue because they're not collecting customer data or personal information. But you mentioned it earlier around a lot of the insurance, tech and tools and resources that are are being implemented now from a work, from home environment, from additional tools and resources on project sites. Jim, you mentioned bringing data off of project sites that everyone's increasing the use of their data right now. So as that happens, that increases the exposure from a cyber standpoint as well. And I couldn't agree more that that is definitely from a society issue for our for our customers. It's not a matter of if. It's a matter of when a potential cyber hit may happen to them and their cyber hygiene and making sure that that is in order before before something does happen.
Paul: [00:25:29] Thank you very much, both of you. It would have been very odd if we hadn't have brought up the cyber topic, but let's talk about the shape of the market over the course of of this year. How do you see the market shaping up and and what do you think our audience needs to be mindful of? So I'd love to just get a takeaway or a tip from each of you. Jim, I'll come to you first.
Jim: [00:25:51] So the the market is much better from a competitive standpoint than it was at this point last year. I think we're seeing more of an appetite and discussions for underwriters looking to grow and how can they grow with us, but they want the best of risks around that. Is Bill brought up earlier. There's really two tiers. The one thing that I would say and it's something that we've been reinforcing really since COVID started, the one thing the clients need to do outside of their master programs is stay on top of project extensions. We talked earlier about inflation, about labor shortages, about projects stretching out longer, costing more. In addition to that, the market may have changed a lot since people put these projects in place. The underwriting companies may be out of the construction market now. So if you're if you're anticipating a project extension in 2022, you need to be talking to your broker about it now, even if it's late in 20 to.
Paul: [00:26:51] Thank you, Jim. Great advice. Bill, let's go to you next.
Bill: [00:26:54] Yeah, well, I couldn't agree more with Jim on the staying in front of project extensions, especially those that have been impacted by COVID because the market has shifted in a lot of those players and their appetite today is very different. I also agree, and I mentioned the two tier, if you sit and do nothing and you're not taking any extra action to to communicate why you're different and why you're better, yup. You're still going to have a tough market. The marketplace, though, is being very receptive and it is decelerating increases. And we've even seen some decreases for those clients that are coming in and saying, look, we're best in class. Here's why we're best in class, here's how we're best in class and how we support it. Here's the results we're seeing and they're showing it all the way from the top down. You're going to see far better results for your programs. And we're definitely seeing, you know, better, better rate forecasting in that regard than what we've seen in the last couple of years.
Paul: [00:27:56] Thank you, Bill. And and I'm going to move over to you now that. The gents have obviously made some great points. But you can top them, can't you?
Danette: [00:28:03] I'm going to I'm going to agree with everything that they said and I will do an and a to their their statements is I mentioned it before right this early and often that I think historically renewals started 180 days before the expiration of their policies that that should no longer be the standard operating procedure that you need to start the day after your renewal and find out do a temperature check on, from an operational standpoint, how well you're doing. I also think that it's critical now from a market standpoint and this is from a construction industry standpoint as well as the insurance industry standpoint, is to make sure that you understand your financial health and wellness. Right. Making sure that you're diligent. We talked about project extensions that can cause delays in getting payments. So making sure that operationally you're doing well. It's proven that contractors have a higher failure rate during a recovery than they do in a recession. And so right now, having your own health and wellness check from a financial standpoint is going to also help you make sure that you can pivot with the market. So taking a look at alternative structures, you have to do that early and in advance of your renewal. But it will allow for you to do that so you can make the most efficient buying decisions, but you can't do that if you're backing yourself up into the renewal expiration date. So I said it before, I'll say it again as early and often and communicate and make sure that all three partners, your broker partner, your client partner and your carrier partners are talking often and in direct and transparent conversations.
Paul: [00:29:35] Fantastic stuff. Great way to wrap things up. My huge thanks to Jim, Danette and Bill. And as I mentioned at the top, they are our construction insurance power panel and they will be back regularly. So for all the insights into the construction insurance market, make sure you keep your eyes here on Insurance Business TV.