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No easing of hard construction market: WTW

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Heightened underwriter scrutiny and reduced capacity are pushing premiums in the local construction sector higher still, with no relief to the hard market in sight, Willis Towers Watson (WTW) says.

The first half of the year brought a continuation of hardening trends experienced last year, and insurers are still carefully scrutinising prior loss histories and notifications, a WTW market update published today says.

Non-conforming cladding and structural defects are a key focus, particularly for clients in the high-rise residential sector. Renewable energy and waste to energy are also particularly challenging areas with many insurers not willing to provide cover.

“We do not expect any easing of market conditions any time soon,” the report said. “The outlook for the second half of 2021 is more of the same.”

Sustained upward pressure has pushed premiums for annual contract works policies up 15-25%, primary construction liability up 30-60%, and annual primary design & construct professional indemnity policy premiums up 50-100%, WTW says.

Capacity is an issue, with a national carrier exiting the sector altogether while a major international insurer has exited primary construction liability. For the capacity that exists, there are premium and deductible increases and greater insurer scrutiny on policy terms and conditions.

“Those who remain are becoming ever more selective in offering capacity, and moving away from underperforming sectors, occupations and poor performing clients," WTW says. “The markets are still showing an increase in rates and excesses, a reduction in policy limits and capacity, and further scrutiny of policy terms and conditions.”

The design & construct professional indemnity market remains “extremely challenging,” with insurers continuing to impose large rate increases, further reductions in capacity, coverage restrictions and increased retention levels.

In excess professional indemnity, availability of capacity is key though WTW says some new entrants are emerging as premium levels are deemed to be nearing their peak.

“We expect that some of this newer capacity will start to participate in the primary space in the next 12 to 18 months, bringing back some competition to the market,” the report says.

The primary construction liability market has experienced an “accelerated adjustment” with significant rate increases for most clients in 2021. Worker-to-worker/contractor injury claims continue to underly insurer losses and deductibles are still increasing across the board.

The Australian contract works market is one of the few construction areas showing some signs of moderation in premium increases. Quality clients with positive loss histories that have experienced two or three significant rate adjustments over the preceding renewals are generally experiencing rate increases at the lower end of the scale.

“While insurer portfolios are not necessarily profitable, many underwriters are reaching the end of their remediation strategy with premium rates reaching a point that they believe will be more sustainable in the longer term,” WTW says.

Increased deductibles for major perils and water damage are still being imposed within policies as insurers continue to focus on natural catastrophe exposures, which are driving loss ratios.

Clients are being scrutinised on their mitigation strategies and work practices, WTW says.