During 2024, the Australian insurance market improved significantly for clients. Local established insurers have adopted a growth-focused strategy, while new players from both London and Australia have embraced competition and improved their capacity benefiting policyholders with better options, pricing and coverage.
Insurers in Australia are still reporting improved profitability, leading to a greater appetite in the construction liability space, whilst overall market stabilisation has resulted in insurance premiums being much more in line with those anticipated. In addition, excess liability pricing and capacity is now relatively consistent across the market.
In the future, an overall increase to global insurance premiums is expected due to the recent LA fires, as the reinsurance market (where insurance companies buy insurance from to mitigate their own losses) inflates premiums to cover their losses from this disaster. It is likely that US local insurers will be forced to do the same. We will not know the true impact of the LA fires on the global market for a few more months.
Insurers continue to focus on risk mitigation and are rewarding policyholders with favourable rates. Insurers remain cautious towards contractors with poor claims histories, resulting in rising premiums and deductibles.
During 2024, we witnessed rate decreases for the first time in many years, but only for businesses with good loss ratios and robust risk management practices.
Exclusions for bodily injury and property damage related to PFAS liability exposures and chemicals such as silica, have now become standard. This means that businesses will be uninsured for third party claims as a result of these exposures. For example, a claim from a subcontractor against a head contractor, a claim from a local resident next to a worksite against a subcontractor due to spreading silica or PFAS etc. Policyholders in the construction, manufacturing, and retail sectors are likely to see these exclusions applied and can expect increased requests for additional underwriting data related to these exposures.
Trade contractors, particularly those specialising in plumbing and fire services, continue to encounter significant hurdles in obtaining adequate insurance coverage. This escalating difficulty stems from a surge in water damage claims, often attributed to faulty installations or defective products.
The financial repercussions of water damage are substantial, encompassing structural repairs, mould remediation, and disruption of business operations.
Worker to worker
Challenges persist with worker-to-worker claims and this remains a growing concern in the Australian construction industry. These claims arise when a worker employed by one company, such as a subcontractor or labour hire worker, is injured on a worksite and seeks compensation from another party involved in the project, like the principal contractor. The average cost of a worker-to-worker claim is approximately $400,000.
To mitigate the growing risks and reduce premiums, most insurers are now imposing substantial deductibles ranging from $200,000 to $250,000 or are opting to avoid liability for these exposures altogether by including exclusions within the policy wording.
Several factors are contributing to the rise of worker-to-worker claims.
- Escalating claim costs: Insurers are witnessing a substantial increase in the average cost of worker-to-worker claims compared to traditional bodily injury claims. This trend is partly driven by the growing number of psychological injury claims.
- Increased worker awareness: Workers are well informed of their legal rights and the potential for better compensation via a worker-to-worker claim when compared to making a claim through the appropriate workers’ compensation schemes.
- Growth of labour hire: The rise of labour hire arrangements creates complex scenarios where injured workers may have grounds to sue host employers or other contractors for negligence.
These factors are presenting significant challenges for insurers who are facing increasing difficulty in defending these claims, leading, as stated above, to higher premiums and more stringent excess requirements for contractors.
Proactive measures can mitigate these risks:
- Thorough record-keeping: Maintaining detailed records of all work activities and safety protocols is crucial.
- Safe work methods: Implementing and enforcing robust safety procedures and training programmes is essential.
- Effective incident response: Swift and efficient investigation and response to workplace incidents are vital.
- Streamlined claims processes: Efficiently managing claims processes can help minimise costs and improve outcomes.
By demonstrating a commitment to these proactive measures, policyholders can positively influence their insurance renewal outcomes and better manage the risks associated with worker-to-worker claims. For more information, please refer to our article here.
Contractual liabilities
Insurers continue to scrutinise policyholders’ contract documents, including those with upstream and downstream counterparties. These reviews focus on the allocation of risk within contractual provisions. Policyholders with inadequate contract administration processes or those offering “no-fault” indemnities that hinder insurers defence and claims recovery may encounter limitations on their insurance coverage. Conversely, demonstrating robust contract management practices can favourably influence insurers’ underwriting decisions.
A significant volume of contract reviews conducted by Bellrock in the last couple of years revealed a concerning trend: many risks sought to be transferred through contracts are not covered by general liability policies.
Policyholders should carefully review all contracts they intend to execute, ideally with input from legal advisors. Your risk advisor / insurance broker’s role is critical in ensuring compliance with insurance provisions and identifying uninsured or uninsurable exposures.
Looking ahead
Overall, all indicators point to a continued stable Australian construction liability insurance market, with more competition and a focus on risk management subject to any global headwinds.
Tips to achieve the best insurance renewal outcomes:
- Prioritise negotiations with your current insurer: Existing relationships, particularly for those with a history of good claims experience, will allow for good leverage during renewal negotiations.
- Explore alternative markets strategically
This is recommended only when:- Your current insurer’s underwriting appetite has shifted.
- Your current insurer, after significant losses, proposes unfavourable terms that effectively constitute a “soft decline.”
- Proactive engagement is key:
- Submitting comprehensive renewal information on risks and exposures can help “sell” a risk to insurers and secure the most competitive pricing.
- Providing detailed risk control information, including measures for engaging contractors, subcontractors, and labour hire personnel, is highly valued by underwriters and can significantly influence pricing.
- Demonstrating a commitment to improvements and lessons learnt from past claims is essential.
Your Bellrock Advisor can assist with optimising your liability programme and risk management strategy. Contact us to learn more.
Continue reading our full range of market updates:
- Insurance Market Overview
- Property
- Commercial General Liability
- Motor
- Contractors Plant & Equipment
- Strata
- Claims
- Workplace Risk
- Executive & Professional Risk
- Construction