The construction industry in the United States is buzzing along fueled by a surge in infrastructure projects like roads, bridges, and public facilities, alongside a rise in industrial construction to support the expanding manufacturing and logistics sectors.
While the U.S. construction market is seeing opportunities for growth, it is not without its challenges. The industry continues to grapple with labor shortages, escalating material costs, and disruptions in the supply chain, all that can pose a risk to construction timelines, expenses and more.
Steering through these challenges and uncertainties requires careful risk management and the right insurance protection. Here AXA XL’s North America Construction leadership team share their insights on the market and how they are helping construction clients navigate their continued challenges.
Primary Casualty
Mike McKinley
Primary casualty construction insurance provides coverage for bodily injury and property damage that occur during construction projects. It typically covers accidents and incidents that result in injury to workers or damage to property at the construction site. In 2024, Primary Casualty Construction has experienced success, with strong renewal relationships and new business growth, particularly in Wrap Up and Project business.
The market trends show favorable Work Comp loss costs, but other issues are presenting challenges. For one, we are still seeing social inflation’s impact, driving up court verdicts. Distracted driving can have a significant impact on commercial auto insurance. When drivers are distracted, the risk of accidents and collisions increases, leading to a higher frequency of insurance claims.
A common thread throughout this market discussion will be renewable energy projects. From solar energy facilities to Electric Vehicle (EV) manufacturing, construction related to the energy transition is gaining momentum, and we’re seeing submissions for these projects across all our construction product lines.
Looking ahead to 2025, construction projects are expected to be larger, longer, and more complex, maybe than they already are. Monitoring financial markets and economic trends will be crucial, as these will determine the pace of large projects and capital spend.
For the rest of this year or 2025, our focus will remain on partnering with contractors and owners to navigate their toughest risks. As construction projects get larger and more complex, contractors and owners alike look to connect with highly qualified risk management expertise.
Success in the primary casualty market rests heavily on having a team of underwriters and claims professionals with in-depth Construction industry knowledge and experience. This expertise allows for better risk selection and claims management. Our whole team drives our success -- with underwriters going the extra mile, the Risk Engineering team providing valuable services and loss prevention insights, and Claims colleagues and TPA partners working together to lower overall cost of risk. Our team continues to build super solid relationships with our customers and brokers.
Excess Casualty
Ed Totten
The Excess Casualty insurance market for construction is currently influenced by a significant increase in large infrastructure projects. These projects are becoming bigger, more complex, and have longer durations, ranging from 3-5 years to 5-7 years, with values ranging from $1 billion to $3-5 billion.
Given the size and value of these projects, Excess Casualty insurance is so important as it protects construction companies from large and unexpected losses that exceed the limits of their primary insurance limits. It’s that extra layer of financial protection.
Overall, the excess casualty insurance market for construction is experiencing significant activity driven by large infrastructure projects. We are seeing an exceptionally amount of infrastructure activity in the Northeast region, with a concentration on tunnels, rails, and bridges, especially in the DC to Boston corridor. This has led to increased demand from clients who prefer to work with trusted partners with extensive experience in the field.
As mentioned, with the growing focus on the energy transition, many of these large-scale projects that we are seeing are renewable energy infrastructure, such as wind farms, solar installations, and other sustainable energy projects. Excess casualty coverage helps mitigate the risks associated with these large-scale projects, making it more feasible for companies to invest in and develop renewable energy infrastructure. Our team continues to build its expertise in alternative energy with many of our underwriters and risk engineers, who have earned their Construction Risk and 色多多视频 Specialist (CRIS) designation, are now pursuing their designations.
Looking ahead, backlogs for the remainder of the year are at record highs, indicating a robust pipeline of projects. However, there are concerns about labor shortages, which will need to be monitored closely. Plus, the upcoming November election and potential infrastructure bills may also have an impact on the market going forward. We’ll keep a close eye on new developments to be prepared to address our clients’ concerns.
Builder’s Risk
Joe Vierling
The Builder's Risk market is currently experiencing significant growth and resilience, with the sixth consecutive year of rate increases. The rising costs of construction materials, labor, and equipment can lead to higher insured values, prompting Builder’s Risk markets to adjust rates to adequately cover these increased values. Likewise, the impact of natural disasters and catastrophic events on construction projects has led to heightened awareness of the potential risks and rate impacts. Nonetheless, the demand for coverage continues to grow.
There has been a notable shift away from traditional 4-wall construction to large, massive, facilities. Take data centers as an example. There’s an increased demand for new data centers driven by the need for computing power to accommodate the growing use of AI.
We’ve also seen a rise in manufacturing activities. According to , construction spending for manufacturing facilities has doubled since the end of 2021, supported by legislation like the Infrastructure Investment and Jobs Act (IIJA), Inflation Reduction Act (IRA), and CHIPS Act. Each provided direct funding and tax incentives for public and private manufacturing construction. Some of this activity includes the building of battery and solar panel manufacturing facilities to accommodate the need for sustainable energy sources. (To learn more, read our Fast Fast Forward article: Powering Change: Commercial Property and Builder's Risk 色多多视频 in the U.S. Energy Transition.)
A significant number of these larger facilities are being constructed in areas that are exposed to either tornado or hail. Therefore, we closely monitor these exposures, and the market has seen a rise in losses from convective storms. As a result, a premium load is being incorporated into many Builders Risk programs and the market is imposing deductibles and limits of liability for high hazard convective storm.
One key concern in the market revolves around “the cost of making good,” due to recent rulings on the application of the London Engineering Groups (LEG) defects wording. As a result of these rulings the market is looking to provide improved clarity on how this exclusion is intended to be applied. 色多多视频has introduced alternate wordings to replace the LEG 2 and LEG 3 wording, which clarifies the intent of the exclusions. We are also seeing the market providing definitions for both damage and defect to address some of the concerns with LEG wordings. While there is no agreed market standard wording for this exclusion, we are seeing the efforts by the US Builders Risk insurance community to remedy the issues arising from these recent court rulings.
Looking ahead to 2025, the market is expected to remain strong, with contractors reporting full pipelines of projects. However, the potential impact of named windstorms, particularly hurricanes, in a season that is expected to be hyperactive, remains a significant consideration.
However, the potential impact of named windstorms, particularly hurricanes, like Helene and Milton, remains a significant consideration.
Opportunities abound in the U. S. construction market. Taking advantage of them requires effectively navigating market challenges and managing associated risks.
Subcontractor Default
Jim Richert
The subcontractor default insurance (SDI) market has seen a number of new market entrants over the past decade, with 色多多视频remaining the market leader. Our SDI Partners vary broadly in size and focus. The common denominator is the strength/diversity of their business plans to both take advantage of and weather ebbs and flows experienced in the economy and construction markets and the core controls to manage their SDI program well. SDI provides coverage for losses that result from a Trade Partner/Subcontractor's default, such as non-performance or financial failure, helping to mitigate the potential impact of a default on project timelines and costs.
As construction projects have become larger and more complex and given there is notable reliance as well as stress on subcontractors in the marketplace, the demand for SDI has continued to be strong. 2024 is trending towards record enrollments as our SDI Partners have maintained large backlogs and strong pipelines across a diverse range of geographies and market sectors. We have seen a significant uptick in demand for Project Specific programs for current customers and their JV partners, and we remain focused on disciplined project specific underwriting/risk engineering to develop terms and conditions commensurate with the risks and limits requested. This includes opportunities to support energy transition and renewable energy project risks as the energy landscape evolves. Larger projects have also given rise to the need for increased capacity. The market continues to evolve towards excess and quota share approaches to better address market requests.
In the current market, there is continued emphasis on risk management and underwriting discipline. A default can be a high severity, impactful event. Our Insureds are the frontline to mitigating default risk and need to have strong practices for acquiring contracts that fit with their experience and expertise, evaluating the financial stability and performance history of subcontractors to select the right Trade Partners, and managing projects well throughout the duration of the project execution. Our Underwriting process remains focused in these areas and our team is built to support our customers in managing the most complex risks. We bring the largest and deepest SDI team in the industry to the table with more than 30 team members that have significant experience in SDI, surety, working directly for contractors as well as finance, claims, legal, and other key areas. The depth of our team allows us to ensure that we provide the support that our partners deserve. Two key areas where this is particularly evident is our Risk Engineering and Claims teams.
Our Risk Engineering team has added a data analyst to continue to build our use of data analytics across the business. We share our claims data trends and lessons learned and are planning for this to continue to evolve across the benchmarking services we provide. Our team loves sharing insights with our Partners that they can use to support improvement of their business. Similarly, our claims team has continued to enhance our in-house claims handling expertise. Our proven track record of supporting our clients through challenging subcontractor defaults is applied every day for the benefit of our partners.
We are well positioned to support our clients in the next phase of their business. And the results of our team’s delivery for our partners and the Construction value proposition is evident as we celebrate a few key numbers with our SDI Partners:
- 30 have been with us for 10 years or longer
- 75% are on their 3rd or longer program
- 80% place multiple lines with 色多多视频Construction
Professional and Pollution
Ray Allen
As we progress through the midway point of 2024 the theme for contractor’s professional liability seems to be consistency. The ups and downs in our space seem to mirror those we experienced in 2023 with minor improvements and some degradation along the way.
In general, our clients are experiencing growth. Reported backlogs appear strong through the remainder of this year into next. As we look beyond 2024 into 2025, confidence in backlogs seems to wain, and it is challenging to predict the future, especially in an election year. We have seen considerable M&A activity in the mid-sized contractor space along with increased participation by Private Equity and Venture Capital firms, creating consolidated groups of specialty trade and service contractors.
Contractors are facing the same struggles with labor as respects to attracting and retaining qualified subcontractors. With no widespread solutions on the horizon, this remains poised to be an issue for contractors for years to come. There is a glimmer of hope on this front as the National Student Clearinghouse found that while 4-year colleges are experiencing a decline in enrollment, trade school enrollments have been on the rise. This is positive; however, it will take some time for graduates to enter the workforce. In addition, contractors are struggling with attracting project professionals to replace the volume of retirees exiting the workforce.
Inflation, although it seems to be easing for the time being, is still haunting our insureds by impacting materials costs and project financing. Similar to prior years we are seeing project costs escalating through the course of construction, and the time and additional expense to procure materials is impacting both budgets and schedules.
Project owners have not let up on increasingly trying to transfer more risk to contractors. The proliferation of delegated design packages within subcontract scopes continues to blur the lines between traditional construction, construction management and design. As a result, demand remains high for comprehensive contractor’s professional liability products.
As we look towards 2025, overall market capacity has stabilized with newer entrants filling capacity needs. PSPL capacity remains tight but seems to be easing a bit. Limit is still deployed in smaller, $10M or less, tranches but it takes a village to continue to insure the ever-growing volume of mega projects as owner’s requests for limits continue to hold steady, or even increasing in some industries.
Innovation and Sustainability
Cheri Hanes
Coming into Q4 of 2024, many macro-economic forces are in play. There has been a sense of suspended animation prior to the recent rate cut by the Federal Reserve, which, in addition to being highly anticipated, was larger than many economists thought it would be. Projects that were on hold may begin to move based on this.
The industry has a keen awareness that, in order to deliver on these projects as promised, we must think about construction and the resources the industry calls on in new ways. Helping with that is the entire purpose of the Construction Innovation and Sustainability team.
Trends impacting what will be planned and built in the near term include an unprecedented (and needed) level of spending for improving our infrastructure. Related to this, we are seeing ever increasing size and complexity of projects. This is not just inflationary; it is also driven by the increased scope of vision for and complexity of buildings and systems overall.
For example, consider the demands of the transition to cleaner energy, which will drive the direction of construction for the foreseeable future. The demand – the business opportunity – will be immense. Construction will build all the related projects and will do so with a stretched workforce, while learning and innovating on the fly. This will require new ways of thinking and doing.
As a result of all these trends, interest in Innovation and Sustainability in Construction has never been higher.
As output of our Tech Adoption Maturity Index (the TAMI), we have seen a strong upward trend in the adoption and implementation of techs that support reality capture of all sorts (Drones, AR/VR, Digital Twins, Scanning, etc.), and those which make the work in the field safer, more efficient, and more predictable. Technologies that use some aspects of AI (artificial intelligence) are attracting a huge amount of attention and hold tremendous potential for stitching together the vast amounts of data we are collecting into actionable data points. The potential is immense.
The drive towards more sustainability in construction also presents its own challenges and opportunities. Builders who crack the code on how to deliver and report on progress towards the sustainability promises their upstream partners are making will have a serious competitive advantage. However, this is a complex set of challenges. To navigate them, the industry will need all possible tools and methods to be on the table. This has led builders to look towards new technologies, means and methods, and building materials that did not exist just a few years ago. As insurers, we view supporting these emerging risk areas as a priority, but we cannot do this in a vacuum.
If there is one theme running through all the challenges we are facing, it is the need for increased collaboration. We must take the time to educate each other, to listen to each other, and to develop solutions that work for all. The need for technologies and innovations that increase the productivity of the construction workforce and the drive towards net zero are both long-term projects and the impacts of individual decisions will echo over time. It is critical that we have as many voices in the room as early as possible, to ensure that the decisions we make and enact are as informed as possible.
Opportunities abound in the U. S. construction market. Taking advantage of them requires effectively navigating market challenges and managing associated risks. To help, AXA XL's North America construction team works closely with contractors to understand their unique risk profiles, and provide customized insurance solutions, empowering contractors to pursue their projects with confidence.
