Report finds commercial insurance premiums stable for construction industry

NEW YORK — The U.S. construction industry, still reeling from the economic downturn, did not experience premium rate hikes in 2010 and likely will pay the same or less for their commercial insurance in 2011, according to a comprehensive report published by Marsh.

Commercial insurance rates for construction firms remained essentially flat in 2010, with some reductions. However, most those reductions stemmed from decreases in contractor revenues and payrolls rather than actual rate decreases, Marsh said in its report, “Approach Your Risks With Clear Direction: North American Insurance Market Report 2011.”

The annual report provides detailed information on commercial insurance market trends and conditions for all major classes of business and for more than two dozen industry and specialty lines, including construction.

For most of Marsh’s construction clients renewing their insurance programs in the fourth quarter of 2010:

• General liability rates were flat to down 5 percent.
• Excess casualty rates were up 5 percent.
• Builders’ risk rates were flat to down 10 percent.
• Contractors’ professional liability rates were flat to down 5 percent.
• Architects’ and engineers’ professional liability rates were flat to down 5 percent for small and midsize organizations and flat to up 5 percent for large organizations.
• Project-specific professional liability rates were flat to up 10 percent.

“The construction industry’s economic recovery continues to lag behind that of the overall U.S.,” said Mike Anderson, president of Marsh’s U.S. Construction Practice. ”The industry’s unemployment rate increased in December and now stands at more than double that of the overall U.S. rate. In addition, private capital to fund construction projects remains, in large part, on the sidelines, with no signs as yet of a significant improvement.

“These challenges should continue into 2011, but we expect many construction firms will pay the same or slightly less for their insurance in 2011,” Anderson said.

In addition to information on insurance rates, Marsh’s report identifies trends that construction risk managers should monitor:

• Construction firms continue to be challenged by ancillary risk management issues that can directly impact their margins and return on capital. One such challenge is the rising cost of collateral required for certain insurance programs, which can tie up capital for new projects. In addition, a variety of state and federal regulatory and court actions are of concern, as are contract forms that push more risk exposures onto balance sheets, and the adequacy of subcontractor prequalification processes.
• More contractors are purchasing professional liability insurance for the first time, due to both contract requirements and evolving exposures from expanded services, new technologies such as building information modeling (BIM), and changing project-delivery methods such as increased prevalence of design-build, and integrated project delivery (IPD). As more insurers enter this market, broader coverage is being offered to address these expanded exposures at competitive prices.

The complete report is available here. Marsh also is publishing Insurance Market Reports for Europe, the Middle East, and Africa; Asia; Pacific; and Latin America and the Caribbean. Marsh’s Multinational Client Service also will publish a report on issues for companies in that sector.