Although the residential building slump has had an impact on the market, commercial construction is still healthy for builders, engineers and contractors. In fact, work is booming in areas like infrastructure repair, building renovation, government contract work and in any areas related to energy.
Like other lines of insurance, pricing for construction coverage is soft, characterized by low renewal rates and easy capacity. But this doesn't mean agents can promise their customers dramatic premium reductions across the board. Pricing hinges on loss experience and the potential for claims, especially for contractors specializing in risky areas such as blasting, or those with builders risk exposures in coastal regions.
Although pricing remains soft, contract language has changed dramatically in recent years. Insurers, stung by claims involving construction defect and builders risk are recrafting contract language by reducing and restricting coverage terms and conditions.
Construction's propensity for big losses means its practitioners need comprehensive risk management services–a need that smart producers and carriers are parlaying into value-added services to tie themselves more closely to their customers.
To determine how these variables are affecting the industry, we recently spoke with several insurer executives and brokers about what they're seeing in the construction market.
Steve Davis
McGriff, Seibels & Williams Inc.
"For the past year we have seen rate reductions in both primary and excess liability coverages," said Davis, director for construction risk services for McGriff, a member of BB&T, where construction generates about $500 million in annual premium. "The overall market capacity is strong, except for property and builders risk in cat-prone areas. Underwriters are responding favorably to program terms. But while we're seeing anywhere from 10 to 15 percent reductions on contractors with favorable loss experience, underwriters continue to focus on contractors' safety management, best practices and historical loss experiences. Customers with poor loss experience will see nominal decreases, if any."
But pricing is negotiable, Davis conceded: If an incumbent insurer doesn't offer a reduction, competitive construction underwriters hungry for new business could offer a rate reduction. However, these moves can be risky, he said. "Ten to 15 years ago, we might have had eight or 10 underwriters looking at this business. Today, we might have only three or four underwriters interested in a given account," he said. McGriff deals with most insurers specializing in construction, including Arch, ACE, AIG, Zurich, Travelers, CNA and Amerisure.
When it comes to trends, Davis is seeing a "tremendous amount" of infrastructure and energy-related construction. "Over the next two to three years, we expect the energy industry to continue to invest heavily in capital improvements to existing plants with significant investments for additions, upgrades and new capabilities, as everybody tries to get more usable product out of a barrel of oil. From that come big construction opportunities."
Teresa Martin
Lockton Insurance
As the world's largest privately owned insurance broker, Kansas City-based Lockton was virtually built on construction. "Construction is our heritage," said Martin, vice president and producer. "Jack Lockton started his career as a surety bond underwriter and started the agency in 1966, writing bonds and insurance for contractors. Many of our small construction clients have grown along with us over the years." Today, construction comprises about 30 percent of Lockton's overall business, with customers of all sizes and specialties.
Lockton's familiarity with construction makes it responsive to market trends–one of which is changes in construction contracts. "One of the top issues for our clients is their contract terms and conditions, especially in dealing with who's responsible for indemnification, liquidated damages, delays and builders' risk," Martin said. Much of this follows from the increase in claims activities in recent years for losses in storm, wind and flood-prone areas, as well as the growth in lawsuits for construction defect.
ISO responded to the trends in additional insured exposures in 2005 by modifying its standard forms for construction coverage. Since then, more carriers have restricted coverage terms and conditions. Compared with a few years ago, carriers also have loosened underwriting guidelines for "residential"-type work and are willing to write this exposure to some degree within a commercial contractor's program. However, obtaining this coverage can be challenging for agents because there is no standard definition of "residential" among the different carriers, Martin said.
Richard Ciardiello
Ciardiello Insurance Agency
Construction is a highly specialized field, and agents hoping to succeed in this area must be able to walk the talk, said Ciardiello, whose Hamden, Conn., agency specializes in construction (for a profile of Ciardiello's agency, click here).
Ciardiello, who launched his firm with his brother in 1996, picked up on the construction specialty in his work at another brokerage. Today his agency generates about $15 million in annual premium volume, primarily from a commercial portfolio that is 70 percent construction. The agency places business with insurers including Hartford, Travelers, Acadia, Liberty/Peerless, CNA and Hanover.
Ciardiello sees an increase in technology in construction. For example, one excavator client's bulldozer equipment has GPS technology, which enables operators to type a map on a computer and program the blade to move itself and grade the property accurately. "Worksites are also becoming a little more green, more concerned about runoff, pollution and waste," he said. "It's still the same industry, but hopefully with a better way of doing things."
Marc Cipriani
Erie Insurance Group
Small to midsized construction clients face a unique set of risks directly attributable to the soft residential construction market. In attempting to stay competitive by adding or switching specialties, they run the risk of increased exposure, said Cipriani, vice president and chief underwriting officer of commercial lines for the Erie, Pa.-based insurer.
The biggest challenge for Erie's agents is contractors getting involved in specialties other than their own in an attempt to stay competitive. For example, a customer calling itself a general remodeler could have past claims in the roofing business because they may have started life as a roofing company but added general contracting for a competitive edge. However, insurers are doing a better job in preauditing these exposures to avoid losses, he said.
Erie, which operates in 11 states and the District of Columbia, specializes in liability and property coverage for small to midsized general, building and construction contractors and artisan contractors. "We stay away from pure general contractors who hire subcontractors to do the work," Cipriani said. "And we prefer contractors that have been in business for several years so we can get a feel for how established and stable they are."
Cipriani sees Erie agents becoming more consultative with their construction clients, both to solidify business and because the customers expect more. "Companies must give their clients on-site programs and be adaptable and flexible when it comes to job site inspections and training," Cipriani said. "We even provide programs on weekends at job sites or places of business, and if one of our agents has more than one contractor insured, we can put on several programs at once at their convenience."
Philip A. Shirk
Liberty Mutual Agency Markets
Liberty Mutual Agency Markets, which writes more than $1 billion in construction business, works with agents through eight regional companies to determine construction market needs in the area, said Shirk, construction product manager. Liberty has a broad contracting appetite in pro-business environments, targeting up to 53 contracting operations. These small to midsized businesses represent about 85 percent of the contracting marketplace, although this varies by state, he said.
Loss prevention is essential, especially as a competitive tool in the soft market. "With the recent high-profile crane losses in New York, public awareness is keen on job site safety and work quality," Shirk said. "We offer a wide variety of construction-related safety training to meet this demand from our midsized contractors."
For example, certain sized government work projects in Connecticut, Massachusetts and New Hampshire require workers to complete an OSHA 10-hour construction safety and health course, which Liberty Mutual Agency Markets can provide to its construction policyholders.
Such services can help an agency stand out from its competitors. "Because dealing with coverage and certificate of insurance issues makes construction labor intensive," Shirk said, "underwriters become best friends with our agents to find solutions, so both of us can work together to build profitable books of construction-related business."
Laura Toops is editor of American Agent & Broker.

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