Professional indemnity (PI) insurance rates in the Australian construction market are probably nearing their peak after insurers raised premiums sharply in the last few years in response to deteriorating conditions, according to broker WTW.

The broker’s latest construction market update forecasts premium rate increases of “flat to +30%” for the Design & Construct PI line this calendar year, noting insurers are showing “more interest” to underwrite the risk.

The forecast applies to annual, primary and excess rates.

“When we take a medium-term view, we see many insurers becoming more open to considering a broader range of [Design & Construct] PI risks,” Broking Director Construction Risks Mark Thompson told insuranceNEWS.com.au today.

“We’re already seeing an increase in providing excess capacity and the stabilisation in primary rates, both of which are positive for this market.”

He says last year the broker predicted increases anywhere between 50% and 100%.

“So this year’s forecast is much lower for the majority of risks,” Mr Thompson said. “Of course, there will always be exceptions, particularly for poor loss histories.

“Does this mean we have seen the peak? All I can really say is I think we’re close to it.”

WTW says while it has not seen any new market entrants in the primary Design & Construct PI space, there are “green shoots with more interest” from insurers taking excess positions on construction risks with the view that they are achieving adequate premium rating for their capacity.

It says the development has not improved the primary capacity in the short-term but it anticipates that, in the medium term, it will lead to greater competition in this space.

WTW says insurers are still scrutinising prior loss histories and notifications, with non-conforming cladding and structural defects being a focus, particularly for clients in the high-rise residential sector.

It adds that other sectors and occupations such as renewable energy, waste to energy and large-scale infrastructure projects continue to be particularly challenged with many insurers not willing to provide cover for these projects or clients.

The second-half of last year saw challenging conditions in the Design & Construction PI space, with insurers imposing rate increases, reductions in capacity, focused coverage restrictions and increased retention levels.

“However, we do not expect this trend to continue into 2022 at the same pace, with insurers achieving pricing adequacy and acceptable retention levels for most clients, so some stabilisation is anticipated during the next 12 months.”

The WTW construction market update says the sector overall finished last year on an improved note for most insurers as their portfolios returned to “positive” territory, reflecting the implementation of remediation strategies over the preceding two to three years.

“We see little change to this approach for the short to medium term, with a continued focus on wording and coverage including excess/deductible levels and capacity deployed,” the update said.

“Across all construction lines of insurance, we anticipate a stabilisation in rates and policy coverage requirements for most clients.

“The exception will be those clients with adverse loss histories, and for projects in perceived high-risk sectors and/or geographical locations.”

WTW projects “flat to +15% growth in premium rates (annual) for Contract Works – Material Damage this calendar year and “flat to +20%” (primary and excess) for Construction Third Party Liability.