Insurance Market Update

For the last couple of years, our annual insurance update illustrated the challenges of the hard insurance market which began in late 2019.

The pandemic, one year into the hard market, led to significant supply chain disruption and soaring inflation, both of which increased insurance claims costs and Insurer loss ratios in 2022, compounding the issues for Insurers.

Despite these rather severe economic headwinds, Canadian Insurers were reaping the rewards of more diligent underwriting and rate increases of the two prior years, so their demand for rate increases in 2022 was tempered, with more modest but steady increases through the first half of 2022.

Our experience in the latter half of 2022 was even better, with a reduced ask for rate increases in respect of contractors who had a good claims history, and even some rate decreases for the first time since early 2019.

We’re far from a return to a ‘soft market’ though. Insurers continue to exercise discipline, seeking modest rate increases on renewals without claims (3-6%), pushing for higher deductibles, and offering only modest capacity for certain classes of business like Builders risk insurance, making it more challenging - and time-consuming - to place insurance on larger projects.

Heading into 2023, we feel specialized knowledge of the construction industry will be required to assist contractors with the evolving risk landscape. For example:

• Steady inflation, rising interest rates, and the resultant increased cost of material and labour are making it more difficult than ever to select an appropriate limit for property insurance (Builders risk, buildings and equipment), since pegging the values wrong can result in severe co-insurance penalties.

• Cybercrime is more prevalent than ever, and the size of these breaches is growing. Purchasing cyber insurance to protect your business is more difficult than ever due to continued increasing claims payouts, and the much more sophisticated underwriting and rating being deployed by underwriters, but internal risk management strategies can mitigate such risks.

• Liability insurance for contracting operations that are seen as “higher hazard” such as Roofers, Plumbers, and Winter Maintenance Contractors continues to be challenging. We have countered this by forging strong bonds with some creative and entrepreneurial underwriters who are now taking advantage of the market by offering innovative new solutions to specialized brokers such as PWA.

We believe our sector expertise not only helps design better insurance programs so contractors avoid landmines in this heightened risk environment, but also serves as a competitive edge when navigating renewal negotiations to achieve a better outcome than our generalist industry peers.

Due to the steady improvement of underwriting results, we see opportunities ahead for contractors in 2023 as numerous insurers appear ready to grow, something we have not seen since the onset of the hard market - when insurers tend to cull their portfolios. We’re seeing the re-emergence of a select few “sleeping giants” in the construction insurance space, and although we don’t expect these insurers to throw caution to the wind and press the growth button “carte blanche”, we are optimistic. We see them looking to grow in select industries within the construction sphere, with contractors who show above average risk management characteristics and practices, and through professional brokers who know the space well and add value to the process.

This more disciplined “profitable growth” mindset will result in the market slowly opening up toward the end of 2023, absent any unpredictable forces which could reverse or delay this trend.