DID YOU KNOW ? Why Is the Insurance Market Hardening? by Gary R. Semmer, CIC, CWCAC, AssuredPartners, Inc. The Construction Insurance market has been firming up for the past two to three years driven by several factors including higher General Liability jury awards/ settlements for construction injuries, Auto Liability awards based on distracted driving, and Property/Equipment climate related claims caused by catastrophic events such as Hurricanes, Tornados, Wildfires and Polar Vortex (freezing) conditions in the northern sections of the country. These factors have caused Insurance Carriers to restrict writing certain types of coverage, reduced their capacity for higher Umbrella/Excess Liability limits and increased pricing on General Liability, Business Auto, Umbrella/Excess Liability and other lines of coverage. Based on both Industry and our AssuredPartners construction data, we’re seeing General Liability rate increases in the 8% to 12% range, Business Auto 10% to 15%, Umbrella/Excess 15% to 20%, Employment Practices Liability 12-15% and Cyber Liability 10-12% depending on type of Contractor, size and scope of operations, geographic area, and individual Claim/Loss experience. Clearly, you can’t control the external factors, but there are things you can do to hedge against market conditions to keep your “Total Cost of Risk” (TCOR): Premiums + Claims + Deductibles + Risk Management Expenses/ Construction Revenues = .0075% to 1.5% (acceptable range) to maintain your competitive advantage. Let’s explore the “best practices” of a Risk Management program to achieve these results: 1. Safety Program/OSHA Compliance: Review every element of your program including Safety Manual, Safety orientation, Safety training, and OSHA compliance with your Safety Director or other responsible party. If you use a 3rd Party Safety Consultant, consider having a Mock OSHA audit performed to get ready should you get pulled into an
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OSHA situation and to avoid steep fines. Lastly, share this with your Insurance Carrier’s Loss/ Risk Control Consultant to show you’re doing everything possible to mitigate risk. 2. Claims Management: Review your past five years of Loss Runs/ Claims History for frequency trends and severity claims to determine how you can avoid them in the future. In addition, you want to make sure older claims are closed out and if there are open Reserves, they are not overstated given the facts surrounding the claim. You should also review your Workers Compensation Experience Modification Rating (EMR) worksheet to make sure the Payrolls and Incurred Losses are properly stated to assure your EMR is correct. 3. Contract Compliance: Set up a standard contract review process to make sure your Insurance program “aligns” with the Insurance requirements in the contracts you’re signing to avoid any surprises, and so you don’t incur any additional insurance costs. 4. Renewal Preparation: This is becoming an “ongoing” process with the steps above to put yourself in the most favorable position as you start the renewal process three to four months prior to your policy expiration dates. • First step is to meet with your current Insurance Broker to go over your Renewal updates (Payrolls, Sub-Work, Equipment & Vehicle changes, etc.) along with any updates on Safety/ OSHA compliance, Open Claims and other changes to your Risk Management program which will make you look favorable to the Insurance Carrier underwriters. • Next, based on market conditions you need to discuss what your current Carrier(s) Renewal appetite is for you and whether you need to seek alternative Proposals. If your current Carrier is going to restrict coverage, require higher deductibles or retentions, or increase rates outside of the normal ranges, then ask your
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Broker to select two to three Insurance Carriers who fit your risk profile, and to prepare a Submission to them with a deadline of 3 weeks prior to renewal to evaluate their Proposals. • If your current Broker is unable to do this or lacks Insurance market access, it is time to seek out other Brokers with Construction market expertise and resources to represent you in the marketplace. We generally recommend interviewing no more than three Brokers and then determine which firm is “best” suited based on their ability to help you manage your Risk Management program and obtain the best terms possible in the marketplace, and then make a change. 5. Alternative Marketplace: In going through the renewal process you may find you are in a better position to take on more risk by securing higher deductibles or retentions. Conversely, you may be ready to have a Construction Captive feasibility study performed to determine how a Group or Single Cell captive can benefit you over the next five years. At AssuredPartners, we represent over 20,000 Construction clients nationwide with 200 offices to serve you, along with an experienced team of Construction Professionals to help you achieve your lowest possible Total Cost of Risk (TCOR).
About the Author: Gary Semmer, CIC, CWCA is executive vice president of AssuredPartners, Inc. Gary has considerable insurance & Risk Management experience in construction, real estate and non-profit industries. He is involved with many insurance and risk management organizations and has served on the Associated Risk Managers International Board of Directors and was recently President of the Associated Risk Managers of Illinois. He has also served as president of the Independent Insurance Agents of Illinois, and was Chairman of the Federal Governmental Affairs Committee. Contact us at asa@assuredpartners.com
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