The construction industry is ever-changing, and the risks continue to evolve year over year. From liability concerns to increased scrutiny over builders' risk policies, staying informed of the latest trends is vital for contractors and project owners looking to protect their investments.

Let’s explore the key insurance trends impacting the construction sector and how they align with the challenges the industry faces today.

Liability Costs on the Rise

Current Issues

Liability costs have been climbing steadily, driven by several factors. Social inflation and nuclear verdicts are pushing general and auto liability insurance premiums upward. These legal trends involve higher jury awards and plaintiff-friendly rulings, increasing claims costs and, ultimately, premiums. Rates for auto liability and physical damage, for instance, are expected to increase by as much as 20%, while umbrella liability costs could rise between 6% and 15%.

Higher liability risks are not limited to courtrooms. Construction site accidents, supply chain disruptions, and natural disasters are adding further complexity to an already volatile risk environment. Each of these factors creates an unpredictable landscape, leading insurers to adopt stricter underwriting and higher rate models.

How to Mitigate Risks

To manage liability costs effectively, contractors and project owners should conduct regular risk assessments and enforce stricter safety protocols. Enhanced driver policies, careful vetting of third-party haulers, and training sessions for staff can minimize exposure to auto liability claims. Furthermore, reviewing and potentially negotiating coverage limits or sublimits for high-hazard activities can provide cost-effective risk control.

Builder’s Risk Stabilization

Current Issues

While liability costs are spiking, the builders risk insurance market is showing signs of stabilization. Rates for low-to-moderate hazard projects are expected to remain largely unchanged, while high-hazard and catastrophe-prone projects may face rate increases ranging from 5% to 15%.

The reasons behind these increases include natural disasters like wildfires, hurricanes, and severe storms. Insurers are applying greater scrutiny to projects located in areas with elevated Nat-Cat risks, often requiring sublimits, higher percent deductibles, and detailed underwriting information, especially for large-scale or coastal developments.

How to Navigate the Market

Project owners and contractors should talk with their agent and review "escalation clauses" in their insurance policies to ensure their builders' risk coverage adequately accounts for fluctuating material costs prompted by tariffs or supply chain issues. Additionally, capacity constraints can be an issue for large projects; exploring quota-share arrangements with multiple insurers is one way to mitigate challenges with single-carrier limitations.

Transportation Claims Are Driving Costs

Current Issues

Transportation claims are not a new phenomenon, but their impact is intensifying. With increased reliance on third-party logistics providers and non-owned vehicle fleets, transportation-related claims now play a more prominent role in construction project risk. The industry expects rate hikes of 7% to 20% on auto liability lines driven by escalating claims costs.

Additionally, contractors are under heightened scrutiny regarding their transportation practices, including fleet management and hired and non-owned exposures. Without proper protocols, even minor incidents can lead to prolonged and costly claims.

Steps to Reduce Transportation Risks

Implement a driver monitoring system and real-time fleet management technologies to lower risks associated with transportation. These tools allow for better tracking and incident management, improving safety outcomes and minimizing claims. Vetting third-party providers thoroughly and maintaining proper record-keeping regarding driver qualifications will help protect businesses from unnecessary exposure.

Key Risks Shaping the Industry

Multiple factors continue to reshape the construction and insurance landscape, amplifying the need for customized and thorough insurance strategies. Below are the primary risks currently influencing the industry's climate.

• Supply Chain Risks

Ongoing disruptions in the global supply chain raise concerns over delayed projects and material cost volatility. These delays can result in contract breaches and penalty claims, elevating the need for comprehensive completion bonds and project-delay coverages.

• Construction Site Theft

Theft at construction sites is a growing concern, with high-value materials and equipment often targeted. Comprehensive coverage for theft-related losses paired with proactive site security measures can lower exposure.

• Natural Disasters

With climate change increasing the frequency and severity of natural disasters, businesses are finding underwriting more stringent for catastrophe exposures. Proactively reinforcing structures and investing in disaster-resistant designs can result in better underwriting terms and reduced losses.

• Auto Liability

Contractors are facing steep increases tied to auto liability coverage as insurers closely scrutinize driver protocols and fleet management practices. Policyholders must demonstrate proactive risk management to secure competitive terms.

Preparing for 2025 and Beyond

The construction insurance marketplace remains a mixed landscape of challenges and opportunities. Liability rates may continue to climb, but developments in builders risk policies and innovations like quota-share arrangements provide a way forward. Addressing transportation liabilities head-on and navigating new underwriting requirements for catastrophe risks will be essential to positioning businesses for long-term success.

Talk with our agents to discuss the right strategies to manage rising costs while maintaining the coverages essential to business continuity in construction.