Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor!

Complex construction risks need specialists

By Denis Brady | President, Burns & Wilcox Brokerage

Construction is a linchpin of the U.S. economy, accounting for 4.5% of gross domestic product in 2024, but it’s also an industry facing pressures on multiple fronts. Economic conditions, labor shortages, and higher costs for building materials are slowing contractors’ growth plans and squeezing their profit margins. Add liability exposures into the mix, and it becomes clear that construction is a challenging business. Managing construction risks is therefore essential.

The Associated General Contractors of America (AGC)’s 2024 Outlook Survey found a majority of contractors are worried about: rising interest rates and financing costs, an insufficient supply of skilled workers or subcontractors, economic slowdown or recession, direct labor costs, worker quality, and materials costs.

At the same time, contractors’ liability exposures are increasing. More frequent litigation and large verdicts are adding pressure to contractors, project owners and developers. Ensuring proper coverage of all parties in a construction project is critical. The complexity of construction projects, with different subcontractors working in each phase, raises the risk of coverage gaps.

A proven method of preventing such gaps is through wrap-up programs known as owner-controlled insurance programs (OCIPs) or contractor-controlled insurance programs (CCIPs). They function in the same way, differing only by which party purchases the insurance – the construction project’s owner or the general contractor. Wraps are an effective way to achieve coverage certainty for owners, general contractors and subcontractors.

Historically, wraps have combined primary general liability, workers compensation and excess liability under one policy. In recent years, GL-only wraps have become more common in construction. The Commercial General Liability insurance form is broadened to encompass most bodily injury or property damage arising out of the construction, regardless of how the loss happened. Under the wrap-up policy, there is no need to allocate blame for any third-party injury or property damage, since all participants are on the same policy.

The size and exposures of a construction project determine the specific coverages and limits included in a wrap program. Understanding the project and the exposures of contractors is the first step in crafting a strong risk management and insurance program.

Changing insurance marketplace

Insurance represents a significant cost for contractors, and for many of them, that expense is rising due to firm pricing conditions in the insurance marketplace. General liability rate hikes are expected to accelerate and remain firm, due to litigation and loss trends.

Some insurance companies have entered the construction sector and exited, realizing that underwriting construction risks is not easy. As a result, a limited number of markets remain committed to the construction industry, particularly for residential and multifamily projects. Overall, insurers have become more selective, particularly on excess liability lines.

Many insurers have reduced the amount of excess liability limits they are willing to provide, have decided to participate at a different attachment point or are no longer interested in participating at all.

For example, only a few years ago, contractors could obtain $20 million to $50 million in excess liability coverage with two or three insurers. Today, it might take that many or more to fill out a $10 million program.

Navigating the insurance marketplace is becoming more difficult, which in turn makes it tougher for contractors to know how to price their bids. Getting the insurance coverage right can make a big difference in a contractor’s profitability on a given project.

What retailers can do

If placing construction coverage seems daunting, retail agents can take comfort in knowing they don’t have to walk that path alone. They should work with a wholesale specialist that has deep experience in the construction industry and strong relationships with the excess and surplus lines insurers.

Retail agents with construction experience already know that putting together an OCIP or CCIP is a complex process that takes time. On many construction projects, a wrap may take up to a year to put in place. Burns & Wilcox is able to obtain indications from insurers early in the process so contractors can factor the expected insurance costs into their pricing on projects.

A first step for retailers working with clients on construction projects is to understand the client’s risks and exposures.

Secondly, engage early on with a wholesale specialist. Burns & Wilcox has the necessary expertise, market relationships and technical knowledge to help with any type of construction exposure.

Thirdly, retailers should collect the proper information that underwriters will require to evaluate the specific exposure.

This information includes the project details, general contractor information, including experience and loss history, risk management, quality control and safety programs, to name a few. Capturing the information at the outset will make the coverage process smoother and help ensure the client is adequately protected.

For more information on construction risk solutions, visit www.burnsandwilcox.com.

Denis Brady is the president of Burns & Wilcox Brokerage, specializing in construction and commercial casualty.