Insurance rates are rising rapidly for contractors, especially for Builders Risk and Excess Liability policies as the cost of claims continues to increase dramatically. While rates for builders risk have been averaging 10% to 20%, pricing for excess liability and umbrella coverage have, in some cases, doubled from the year prior.
Both lines of insurance have seen steep and unexpected losses in recent years, resulting in some insurers leaving the market and others becoming stricter in their underwriting and choosier about which builders they are willing to extend coverage to. Here’s a look at what’s going on.
According to Construction Executive magazine, rates are going up between 10% and 20% for builders risk policies. Multiple factors are affecting rates:
- The cost of claims has increased primarily because of the increase in the cost of rebuilding after a loss event. This is happening because of rapidly rising costs of materials, especially lumber, the prices of which have triple in the past year.
- The cost and frequency of natural disasters is increasing. Projects that are near areas at high risk for natural catastrophes like brush fires, hurricanes, tornadoes, or flooding are all seeing higher rates and/or difficulty in securing coverage.
- Some insurers have left the market, leaving fewer players willing to write this risk.
Insurers are tightening eligibility guidelines and restricting how much they will cover. Some companies are getting more selective and demanding that their insureds take extra precautions before they are willing to bind a policy. Some of the more common demands include requiring:
- Video surveillance systems on worksites
- Guards to patrol worksites at night
- The installation of fencing and lighting
One of the biggest pinch points is policy extensions, which are needed when projects go beyond the time expected to complete them. The problem has been exacerbated by the pandemic, which disrupted many construction projects across the country and required more companies to seek extensions for their builders risk policies.
Renewal costs for excess liability and umbrella insurance have been running 50% to 100% higher than in 2020, according to a recent report by Marsh LLC. Excess liability and umbrella coverage kick in after a claim breaches the limits of a primary general liability policy or auto liability.
The drivers of this rise in renewal costs are increasingly large jury awards and the spiraling cost of liability claims, particularly for commercial vehicle accidents. Juries are being more generous with awards and many cases never reach trial but end up costing builders and their contractors when they settle out of court.
Those settlements are covered by general liability insurers, and excess carriers cover the rest of the settlement or award breaches the primary policy limits. Like with builders risk, this has resulted in fewer insurers willing to write new policies. Those that are willing to write new business or renew policies have imposed stricter underwriting terms on the policies they are prepared to accept.
With the volatility in the marketplace, reach out to your agent in advance of your policy coming up for renewal so they can work with you to make sure you have the coverage you need.