Carl Dowling sheds light on construction insurance trends in the E&S market
The US construction insurance market is experiencing significant shifts, driven by a combination of rising project costs, evolving regulatory requirements, and a more dynamic claims environment.
To explore these changes, Insurance Business hosted a roundtable discussion featuring Carl Dowling, Senior Vice President of Casualty Construction Liability at Upland Specialty Insurance, and Jeff Benson, Builders Risk & Contractors Equipment Program Leader at Victor Insurance Managers. Both leaders offered insights into the latest trends shaping the construction sector and the implications for brokers navigating the excess and surplus(E&S) market.
“The E&S space has seen double-digit growth over the last five years, and that market is now worth over $86 billion. I would expect that to continue” noted Mr. Dowling.
Mr. Benson added that increased project costs and delays are now commonplace - trends which have had profound effects on the industry in recent years. “Construction projects are taking longer, they’re costing more to complete, and we’re seeing more catastrophic events.”
The Impact of New Laws and Building Codes
One of the significant themes discussed was the changing regulatory environment. “Substantial government investments, like those from the Infrastructure Investment and Jobs Act, CHIPS Act, and the Inflation Reduction Act, are pouring money into the construction industry,” stated Mr. Dowling. “They’re expected to bring trillions of dollars in funding from the US government, potentially creating millions of jobs over the next decade –primarily in infrastructure.”
Regulations can also have unintended consequences. Florida’s SB 4-D, a response to the Surfside condo collapse, created obligations for condo associations designed to provide added safety for homeowners. These obligations have come at an increased ownership costs with a ripple effect that has contributed to a 20%drop in condo sales across the state.
“Updated building codes and new trends in green building practices are influencing insurance premiums. The value of updated codes from an underwriting perspective also contribute to rising project costs,” added Mr. Benson. “When it comes to building codes, they are great from an underwriting standpoint, and they actually mitigate losses,” he explained. “But on the cost side of things, the projects are costing a lot more, so there’s a trade-off there.”
Claims Trends and Mitigation Strategies
“We’re seeing an increase in theft and vandalism claims, but there are many things that insurance agents can talk to builders about to mitigate these problems,” Mr. Benson commented. “This includes lighting, cameras, and equipment to make the site safer. We also need to encourage them to have better control of inventory as things can just disappear from sites.”
“Inflation is a major driver of increased claims costs,” noted Mr. Dowling. “The value of things being built are going up, as are the materials and costs of labor to build them. As a result, claims are also going to trend upwards,” he explained. “My advice would be to consider that values are likely to continue to increase, if by no other reason than the cost of inflation.” He advised brokers to have proactive discussions with insureds and underwriters to ensure adequate coverage limits that account for anticipated future values.
“Policies should be carefully reviewed for coverage gaps such as action-over exclusions, course of construction exclusions, and sunset clauses, which can significantly affect claims outcomes.” Mr. Dowling warned. “It is critically important to read your policy and understand what you have.”
Benson echoed these concerns, stressing that all policies are not created equal, which can lead to complications when a claim arises. “Know your policy, and don’t assume that every carrier’s policy is the same,” he said. “They can be dramatically different, and these differences really show up at the time of a claim. Brokers are recommended to regularly engage with underwriters, walking through claims scenarios to clarify coverage specifics.”
Addressing how to manage mid-term policy changes, communication between brokers, insureds, and underwriters is essential. Benson shared an example involving a builder increasing their planned housing units mid-year, underscoring how this impacts coverage and premiums. “If the agent is on top of communication with the builder, they should be able to go to the underwriter and say that the risk level has grown.”
“Policy terms should also be reviewed when the project scope changes. Failing to adjust for increased exposures from a change in the project could lead to the project being under insured at the time of a loss,” recommended Mr. Dowling. “Mid-term check-ins to maintain accurate exposure levels, benefit both the insured and the underwriter.”
Looking Ahead: the Future of Construction Insurance
Looking forward to 2025, Mr. Dowling sees the E&S market continuing to expand with new talent entering the industry and an increasing need for mentorship and knowledge-sharing.
“We have lots of great young underwriters and producers coming into the industry, and many new people coming into construction. However, there are some experience gaps. The best advice I can give anyone is to build your network and your relationships. Make sure you’re learning from those who have the expertise and pass that knowledge onto others. We could do the entire insurance industry a big service by collaborating more and really growing together,” advised Mr. Dowling.
Benson noted that while construction costs are rising, the quality of building is improving as well. He advised brokers to adopt a more consultative approach as insurance costs take up a larger portion of clients’ budgets.
“From an industry standpoint, as our pricing goes up, we are going to become a bigger part of someone’s budget. The broker needs to become more consultative in nature because that’s critical to success,” he said. He also warned of the increasing risk associated with construction in areas vulnerable to natural disasters, urging brokers to work closely with underwriters to secure coverage capacity for such projects.
“We need to reinforce the importance of a proactive approach to policy management, regulatory awareness, and relationship-building as the construction insurance market continues to evolve,” concluded Mr. Dowling.