The Construction Umbrella and Excess Insurance market is seeing a slowdown in rate increases. Although large fleets and construction companies working in New York may still face challenging renewals, rate increases have started to moderate. Rate increases of 30% or more are still expected, but only in classes with a higher risk of catastrophic claims.The construction umbrella and excess insurance market continue to experience rate increases. In recent years, rate increases for this coverage have averaged between 15 and 25 percent. This is higher than the average increase for other liability coverage types. This growth is attributable to several factors. First, the construction industry continues to face high-risk exposures.
Additionally, claims from storms, hurricanes, and wildfires have increased. Second, advances in science and technology have helped insurers create better tools for loss evaluation and detection. Finally, consumers are more aware of business information than ever before. Social media has empowered people to express their opinions about companies, which has fueled anti-corporate sentiment. Moreover, the constant stream of news on the web has fueled jury awards.
Third, increased claims severity has forced insurers to raise premium rates. The current environment in the umbrella and excess insurance market is highly competitive. As a result, insurers seek to improve their profits through careful underwriting. As a result, premium increases will likely continue pushing premiums to double-digit levels. Extensive jury awards, often over $10 million, increase insurance premiums by 20 to 50 percent annually. As a result, insurance carriers are making changes in their reserve calculations to reflect better the risks associated with significant awards. In addition, new factors are factored in, including post-pandemic challenges related to supply chains and labor shortages.
The increased cost of coverage has caused insurers to raise premiums in both the umbrella and excess markets. In addition, increasing claim costs resulting from inflation have accelerated past 7% and may have outpaced investment income improvements from Fed interest rate increases. However, new competition is entering the umbrella and excess insurance market this year, tempering these rate increases. New competition is also reducing "nuclear verdicts" spurred by anti-corporate sentiment and private-equity-funded third-party litigation.The construction industry is facing a severe lack of skilled labor. This is a top concern for construction companies and their insurance partners, resulting in delays and concerns over safety. This situation is affecting the growth of the industry. However, there are ways to address the shortage. Employers can use various methods to recruit skilled workers, such as using job websites and associations to find qualified individuals.
Many construction firms report that it is challenging to find skilled labor for most of the industry's workforce, particularly for hourly positions. This leads to less experienced employees being hired, driving up Workers' Compensation claims and defect claims. Additionally, some general liability carriers are exiting the residential market due to a lack of skilled labor. This trend has created a tough wrap-up market as capacity declines.In the first quarter of 2019, the umbrella and excess insurance market moved toward tighter underwriting. That trend has continued throughout the year. Excess and umbrella markets are firming up with increased capacity restrictions and prices. In addition, the construction industry has also seen increased court awards for claims. Consequently, the construction industry faces high-risk exposures. To navigate these shifting conditions, brokers must focus on proactive strategic planning, creative approaches, and strong carrier relationships.
The construction umbrella and excess insurance market are experiencing an increase in volume, although most carriers are still cautious with capacity in lower layers. This increased competition has prompted some carriers to decrease rates in excess towers. Additionally, most contractors have paired their primary and lead umbrella programs with the same carrier, limiting the capacity for the unsupported lead umbrella market.With the recent changes in COVID-19, the construction umbrella and excess insurance market are likely to see several changes. The most significant change will likely be an increase in insurance premiums. As a result, many insureds will contemplate lowering their limits to offset the premium increases. However, when making such decisions, they should consider their accurate exposure and the transfer of risk. Additionally, limits should be based on the contract requirements and statute of repose requirements.
Midsize and large construction companies often purchase excess and umbrella insurance policies. These policies are designed to provide company coverage to survive a large liability claim. Many policies provide higher limits than primary liability policies, such as auto and employers' liability policies.