EXTRAPIC NEEDED Contract Works & Liability Insurance — 2023 Market Update

The insurance industry has historically experienced fluctuating pricing cycles caused by a range of factors including insurers entering/exiting the market (capacity) and claims trends. Claims frequency and overall claims costs will impact insurer profitability and result in subsequent premium pricing changes. Over recent years several insurers have exited sectors of the Australian construction insurance market, citing poor claims experience and profitability concerns. Remaining insurers similarly have experienced increasing claims; in combination with fewer insurers in the construction market this has increased pressure on insurer profitability for those that remain.

Over the past few years, insurers have significantly increased premium rates for contract works & liability insurance, with claims costs increasing due to water damage, subcontractor injuries, and weather events. So far in 2023, we’re seeing insurers continue to increase rates, with some insurers increasing rates more significantly than others. Pricing continues to vary considerably between insurers, who each have their own unique pricing structures depending on construction activities, business size, project size/ limits, and claims history.

As we’ve detailed previously, the coverage provided by construction insurance policies differs considerably from one policy to the next. With insurers continuing to seek to improve their profitability, these coverage restrictions are often increasing, and can leave your business unnecessarily exposed to losses that can be fully covered through having the right insurance policy. Somewhat unexpectedly, very often the lower cover insurance policy is now coming at a higher cost.

A few common examples of coverage differences we’re seeing currently.

1. Damage to past projects is excluded by most polices. While these claims often involve defect rectification which is excluded (ie failed waterproofing), broader policies will cover the water damage costs as insured ‘resultant damage’.

2. Hot works/welding/cutting coverage conditions – many policies contain conditions requiring hot works to be conducted in strict compliance with Australian standards. These standards aren’t widely known, and at Master Builders Insurance Brokers (MBIB) we’ve seen several >$1M losses where welding was not done in strict compliance with the Australian standards, which could’ve resulted in an uninsured loss.

3. Coverage for projects ceases at different times. Many policies stop covering your projects when they are partially occupied or partially put into use. In the event that your project has not reached practical completion, but you’ve allowed a portion of the works to be used for storage (ie the homeowner places contents in the garage a few weeks prior to completion), many policies are no longer covering your project. Under most construction contracts, you would be responsible for insuring the works until practical completion, and many policies don’t align with your contractual obligations, which could result in a large uninsured loss. Broader policies provide permission to occupy and operate coverage extension, which ensures coverage continues and aligns with your contractual obligations.

On the lower coverage construction insurance policies, there are typically 1020 key coverage differences where MBIB regularly sees claims. As a specialist construction insurance broker, the team at MBIB are well versed in these coverage differences and can help you understand the key claims types that simply may not be covered at all through other policies.

With the insurance market cycle