The U.S. construction market is in a growth mode. According to the FMI Corporation — an investment bank that serves the construction sector — trends driving that growth include:
- Total U.S. engineering and construction spending is forecast to be up 7% in 2022.
- Strong investment in residential and manufacturing will drive industry spending.
- The Infrastructure Investment and Jobs Act will benefit non-building segments such as highway and street, sewage and waste disposal, and water supply.*
From a Casualty insurance perspective, new market entrants are eager to support this growth.
"New entrants are definitely driving competition, as you now have fresh eyes and fresh capacity looking at construction risks," said Russ Stein, area executive vice president at RPS. "I recently saw a renewal where a new carrier undercut the incumbent by 30% on a $10 million excess of $5 million liability program."
The new market entrants are unencumbered by the legacy losses that often plague carriers that have been writing construction for the last two decades. As such, they can drive market competition in the sector and shift the environment back to being friendlier to the buyer than to the carrier.
Demand for Skilled Construction Workers
Still, new capacity doesn't eliminate all the insurance challenges in this market.
The construction segment is feeling the impact of two post-pandemic economic trends — labor shortages and supply chain issues — both of which have an impact on insurance programs.
The current demand for new construction has created a need for experienced, highly skilled workers, such as carpenters, electricians and plumbers, as well as construction site managers. It's been estimated that this industry segment would need to attract 650,000 workers on top of the normal hiring level just to keep up with demand.
"The likelihood of something going wrong is greater with a construction worker with two years of experience than it is for one who has been doing the job for 20 years," acknowledged Stein.
An incident could result from a construction defect, a premises loss related to safety, or the worker's own lack of knowledge and/or experience on a construction site.
As inflation and supply chain delays contribute to project costs, they also drive up the cost of the general liability (GL) coverage.
With rate based on construction value, "We're having to do more negotiations with underwriters, as construction budgets keep climbing and project timelines lengthen due to previous delays from COVID or supply-chain issues," Stein said.
Infrastructure Opportunity in the Construction Industry
Looking ahead, the Infrastructure Investment and Jobs Act will create even more opportunities in a market that is already stretched to capacity. The package allocated $110 billion to roads, bridges and other major infrastructure projects.
Construction firms that want to participate in these projects will need GL and other coverages from carriers that meet the stringent minimum financial requirements for these contracts. The minimum requirement typically is a rating of A-VII or higher from A.M. Best. Meeting the requirement means partnering with a solid, financially qualified insurer who will be there for the long haul.
Learn more about what's next for the Casualty market in the RPS 2022 U.S. Casualty Market Outlook.