Builder’s Risk and Umbrella Insurance Pricing Climbing Fast

Insurance rates are rising rapidly for contractors, particularly for builder’s risk and excess liability policies as the cost of claims continues to increase dramatically.

While rates for builders’ risk have been averaging 10 to 20%, pricing for excess liability and umbrella coverage have in some cases doubled from the year prior.

Both lines of insurance have seen steep and unexpected losses in recent years, resulting in some insurers leaving the market and others becoming stricter in their underwriting and choosier about which builders they are willing to extend coverage to.

If you’ve been in the market for these lines of insurance, you know that it’s become more difficult to secure similar policies to those you may have had in years past. Here’s a look at what’s going on.

Builder’s risk

According to Construction Executive magazine, rates are going up between 10% and 20% for builder’s risk policies. There are a number of factors affecting rates:

• The cost of claims has increased, primarily because of the cost of rebuilding after a loss event due to rapidly rising costs of materials, in particular lumber, the prices of which have tripled in the last year.
• The increasing cost and frequency of natural disasters. Projects that are near areas at high risk for natural catastrophes like brush fires, hurricanes, tornadoes or flooding, are all seeing higher rates and/or difficulty in securing coverage.
• Some insurers have also left the market, leaving fewer players willing to write this risk, which has driven up pricing.

Insurers are tightening eligibility guidelines and restricting how much they will cover. Some companies are getting more selective and demanding that their insureds take extra precautions before they are willing to bind a policy. Some of the more common demands include requiring:

• Video surveillance systems on worksites.
• Guards to patrol worksites at night.
• The installation of fencing and lighting.

One of the biggest pinch points is policy extensions, which are needed when projects go beyond the time expected to complete them.

Due to the issues mentioned in the bullet points above, policy extensions for ongoing projects have been difficult to secure, according to a report by Willis Towers Watson.

The problem has been exacerbated by the COVID-19 pandemic, which disrupted many construction projects across the country and required more companies to seek out extensions for their builder’s risk policies.

Excess liability

Renewals for excess liability and umbrella insurance have been running 50 to 100% higher than in 2020, according to a recent report by Marsh LLC. Excess liability and umbrella coverage kicks in after a claim breaches the limits of a primary general liability policy or auto liability.

The driver: Increasingly large jury awards and the spiraling cost of liability claims, particularly for commercial vehicle accidents. Juries are being more generous with awards and many cases never reach trial but end up costing builders and their contractors when they settle out of court.

Those settlements are covered by general liability insurers, and excess carriers cover the rest if the settlement or award breaches the primary policy limits.

Like in the builder’s risk segment, this has resulted in fewer insurers willing to write new polices. Those that are willing to write new business or renew polices have imposed stricter underwriting terms on the policies they are prepared to accept.

Additionally, according to Marsh, primary and excess insurers are limiting the overall capacity extended to an individual buyer by capping per-project aggregate limits.

The takeaway

With the volatility in the marketplace, we recommend that you reach out to us early ― and months before your policy is coming up for renewal ― so we can work with you to make sure we can secure the coverage you need.