Will construction insurance costs continue to rise?
Builders have been dealing with rising insurance costs for some time. In fact, according to Univest Insurance, home construction insurance premiums have increased by 5% to 15% annually for each of the past four years.
The jumps stem from a number of factors, including skyrocketing material costs, increased natural disasters and extreme weather events, and increased instances of theft at construction sites.
The pandemic also has a lot to do with it. As Deanna Koestel, Co-Chair of Construction Law at Pashman Stein Walder Hayden explains, “COVID-19 has brought a number of new challenges to the construction industry, including a shortage of skilled workers, disruptions and project delays, supply chain issues driving up material costs, extra work practices, and safety issues.These concerns have exacerbated costs already rising due to increased exposure to cybersecurity and catastrophic weather events that have had a significant impact on the industry over the past few years.
Unfortunately, the pandemic is not behind us yet. What about extreme weather events and high material costs? These are still there too. Does this mean that builders should be gearing up for another year of rising premiums, or will things start to stabilize?
According to most experts, construction insurance costs will continue to climb as we move forward into 2022. For one, the demand for new construction (and all homes, for that matter) is incredibly high. When you add in rising procurement costs, new home prices and the costs of rebuilding those properties in the event of a disaster, the premiums will gradually increase.
Persistent labor shortages will also emerge, according to Erik Cofield, executive business coach for the Association of Professional Builders. “The industry – and almost all builders – are understaffed,” Cofield says. “Crews are widely dispersed and accident rates are set to increase with more volume and no reduction in volume in sight.”
How to reduce costs
Manufacturers do not have to bear these rising costs. According to the pros, there are plenty of ways to minimize bounties, even in the face of seemingly unavoidable challenges.
“When we try to reduce premiums organically for our construction clients, we encourage them to focus on two things: their safety culture and their claims experience,” said Reggie Reiter, Senior Vice President at Univest Insurance. “Focusing on these two areas has the potential to not only help save money on insurance, but also improve results and attract and retain first-class employees.”
From a safety perspective, builders can reduce the risk they pose to insurers, and the resulting premiums, by better protecting their tools, materials, equipment and other jobsite supplies. This can include fencing off constructions, installing security cameras, hiring after-hours security personnel, or even adding GPS monitoring to construction vehicles and larger equipment.
Employee protection is also vital and can have the greatest impact, especially with the increase in liability claims in recent years.
“The biggest increases we’ve seen are in excess liability limits,” says Dan Schaller, senior vice president of insurance brokerage Woodruff Sawyer. “Rising jury prices, inflation in medical costs, among other factors, are pushing claims into overshoot limits. or have significantly increased their prices while reducing the limits they offer.The price of a $5 million excess policy is what you previously paid for $20 million.
To better protect employees, experts suggest installing multiple fire extinguishers and smoke detectors on job sites, hanging no-smoking/vaping signs, and even putting in place portable devices that provide proper distancing. . This can reduce the spread of COVID-19 (and the delays and outbreaks that often result from it).
According to Reiter, having a formal safety and training program is another good way to show insurers that you are also risk averse. As he puts it, “a well-developed, documented, and executed safety program will result in fewer injuries, fewer claims, and, in turn, lower insurance expenses.”
Builders can also implement project management software to prevent work from being delayed, have strong subcontracting agreements that protect against negligence and, if necessary, take on higher deductibles.
As a last resort, there is always the possibility of reducing coverage, but experts say manufacturers should tread carefully on this front.
“Remember that insurance is meant to protect and help the insured recover from events that might otherwise create a solvency problem,” says Joseph Lam, senior director of risk assessment firm Verisk. . “Cutting costs in other ways may be more prudent. Reducing coverage and retaining more risk should be a last resort.