The period of transition is continuing in the primary casualty insurance markets regarding rates and coverage terms and conditions. Insurers are seeking increases from 5 percent to 15 percent. Risks with high loss ratios typically are experiencing higher increases and non-renewal notices. In the first quarter of 2012 marketing the account generally was successful in lowering rates compared to the incumbent’s offering; however, that stopped being the case in the second quarter. With the competition less aggressive, more incumbents are keeping the business.
Insurers remain strict regarding additional insured wording as they try to limit the coverage afforded to the contract requirements. This includes coverages being excess to the additional insureds unless the contract requires coverage to be primary. Another example is that contracts have to be “executed” prior to a loss. Fewer carriers are willing to use the standard Insurance Services Offices (ISO) additional insured endorsements.
- New York continues to be a challenge for commercial general liability (CGL) insurers, especially for work within New York City. Guaranteed cost coverage is not being offered by the majority of insurers, which are struggling to retain limits and deductible levels at the expiring rates.
- The workers’ compensation market has been relatively stable for good quality risks. However many states are increasing rates. The National Council on Compensation Insurance (NCCI) recently announced that it will be redefining experience modification calculations, which will increase modifications. This will certainly impact the construction industry as the experience modification factors (EMF) could easily exceed 1.00. This would place contractors out of bidding where an owner requires an EMF of 1.00 or below. Insurers face deteriorating combined ratio trends, escalating medical costs, and legislative concerns.
Project-Specific General Liability (GL)
The market for project GL is competitive in most states, marked by enhanced coverage and abundant capacity. In excess and surplus (E&S) lines placements, carriers may delete exclusions for “your work” under the completed operations coverage; however, some E&S insurers use cross-suits exclusions. In New York, many owners and contractors purchase project-specific GL in response to Labor Law 240 (known as the “scaffold law”). Owners’ interest in GL policies is becoming more prevalent.
General liability wraps remain competitive, except in the state of New York, where deductibles of $1 million and excess attachment points of $5 million or $10 million are common, driven by claims arising out of Labor Law 240. GL wraps are considered a necessity in states where intermediate form indemnity and additional insured are limited by statute. They remain a standard for buildings for sale, especially residential, where certainty of completed operations coverage through the statute of repose is necessary.
Controlled Insurance Programs (CIP)
The market for controlled insurance programs, or wrap-ups (workers’ compensation, GL, and excess liability), is competitive, due to a U.S. construction economy that remains near a 12-year low, and a resultant lack of major projects. While rates for renewal of rolling programs or additional projects for established clients remain relatively flat with favorable loss experience, rates for first-time wrap-ups are increasing modestly. For well-qualified contractors and owners, insurers offer improvements such as one to five years of coverage for warranty repair coverage.
Although enhanced coverage is available, insurers are adopting defensive measures such as limited coverage for damage arising from products liability, which could create a gap between the wrap-up and contractor-provided policies.
Excess liability markets for controlled insurance programs are increasing rates to a greater degree than primary markets, and some are indicating reduced interest in wrap-ups, particularly maintenance wrap-ups. Insurers that can write primary plus the lead $25 million excess offer greatly improved premiums and programs when sitting excess of their own programs.
Umbrella and excess capacity is stable. Through the first half of 2012 it is apparent that the market is looking for moderate rate and premium increases in the high single digits to low double digits. The number of lead markets is still limited.
In many instances, buffer layers are needed for project-specific and contractor practice programs as carriers often require higher attachment points for certain segments of the industry, such as street and road contractors, contractors with large fleets, and when per-project general aggregates are needed. In certain geographies, such as New York, higher attachment points are being requested.
Capacity is not an issue excess of $25 million. There is an abundance of excess capacity, both domestically and abroad.
Builders risk insurance capacity remains stable. For projects without significant catastrophe (CAT) exposure, there is an abundance of builders risk capacity available. The amount of available capacity has kept rates generally flat. Capacity has been reduced in certain locations where there is CAT exposure, resulting in rate increases, typically in the range of 10 percent to 20 percent. Underwriters generally have agreed to broader terms and conditions and continued to compete aggressively for project work. Extensions of coverages, which were not offered on a regular basis in previous years, are now available for certain projects—such as the LEG (London Engineering Group) 3 and extended maintenance coverage.
The market for contractors professional liability remains competitive, with newer market entrants aggressively pursuing new business. Incumbent insurers are looking to maintain existing rates or achieve slight increases. Revenues are trending up for many contractors, contributing to year-over-year premium increases. Limits capacity remains more than adequate, and underwriters are introducing coverage enhancements as differentiators. A leading underwriter recently introduced a new errors and omissions insuring agreement targeting artisan contractors. It includes coverage for claims arising from a negligent act, error, or omission by the insured in the workmanship of its work or the use of defective materials or products in its work, in addition to the traditional professional liability for design-related exposures.
Rates in the architects and engineers markets are increasing, with most underwriters now seeking to achieve increases in the 5 percent to 15 percent range regardless of a firm’s loss record. However, there are many newer market entrants that are aggressively seeking business, especially from small and mid-size firms.
Project-specific architects and engineers and contractors professional liability remain limited in their availability, and costly. However, limits capacity has increased with more underwriters interested in providing excess coverage. Owners protective professional indemnity (OPPI) continues to be a cost-effective alternative with more underwriters now offering this coverage on both a primary and excess basis.
The environmental insurance market continues to be competitive, with multiple carriers offering contractors pollution liability coverage on standalone and combined forms, which include professional and general liability coverage. Forms for specific infrastructure and other owner controlled/contractor controlled projects also are available.
Insurers continue to see an increase in the need for contractors pollution coverage for energy-related projects such as shale gas extraction. Claims arising from mold and storm water runoff issues continue. The market has pulled back extensively on combined forms offering GL coverage in New York due to Labor Law 240. Chartis, which has a large market share for this product, is increasing rates, restructuring terms and requiring high self-insured retentions for such work. Other carriers are following suit or declining the risks entirely. We have found only two insurers willing to entertain insureds with New York exposure at this time.
Overall, rates and capacity remain stable and the market remains competitive in this line for both blanket and project policies.