The construction liability market continued to shift throughout 2025, marked by a steady expansion in capacity and a noticeable return of insurers who had previously withdrawn from the market. This influx of market capacity has intensified competition, contributing to falling rates, easing deductibles for some exposures, and more flexible underwriting criteria, particularly for well-managed risks. Insurers have also shown a greater willingness to offer broader coverage and higher limits, creating highly favourable conditions for policyholders.
Despite the softening environment, underwriting caution remains. Insurers continue to monitor key exposures closely, focusing on contractual risk, maintaining higher deductibles for worker-injury claims, applying greater scrutiny to high-risk sectors such as residential high-rise builders, plumbing and fire services contractors, whilst managing broader industry challenges including ongoing labour skill shortages.
PFAS and silica exclusions are now standard in construction liability policies, reflecting growing health concerns and the potential for long-tail claims. Insurers have removed these exposures from cover, leaving businesses with increasing uninsured risk where contamination or silica-related harm is alleged.
Market expectations for 2026
As we move into 2026, the trend toward reduced rates and broader coverage is expected to continue, underpinned by strong capacity and increasing competition. Policyholders are likely to benefit from favourable terms, improved deductible structures, and more accessible coverage options. However, the central question remains: How long can this soft market last?
Early indicators suggest that the current conditions may be shorter lived than hoped. Margin pressure, slowing premium growth and the prospect of deteriorating combined ratios through 2026 and beyond are signalling a potential shift in market direction. Four key structural factors are driving this dynamic:
1. Rising worker-to-worker and psychological injury claims
Worker-to-worker claims, especially those involving psychological injury have become one of the most expensive components of liability portfolios. The overall average claim costs now sit around $400,000, and in NSW the cost of psychological injuries has almost doubled since 2020. Extended return-to-work timelines and complex psychosocial factors are prolonging claims and increasing long-tail liabilities. Further analysis is available in our article on psychosocial compliance and insurance obligations.
2. Escalating construction and rectification costs (third party property damage)
Construction costs, including labour and materials, have surged in recent years. This inflation directly impacts claim severity, with even moderate incidents now causing losses that exceed historical expectations. For example, large-scale water damage losses routinely reach into the tens of millions of dollars, eroding underwriting profitability.
3. Modular/prefab
Unfortunately claims from mass-produced prefabricated products are tending upwards. Whilst this often materialises as a property damage claim in the first instance, the resultant flooding and business interruption to third parties have meant that this is a new area of scrutiny for liability underwriters. If you are looking to utilise new products or methodologies then Bellrock can obtain loss information from the insurance market, enabling you to make an informed decision on its suitability for your project.
4. ‘Deemed Manufacturer’ party status.
If you are directly importing goods from outside of Australia (without the use of the local wholesaler) under Australian law you are the ‘Deemed Manufacturer”, meaning you are responsible for any liabilities associated with that material or product. There is a litany of horror stories describing products failing or not meeting Australian standards such as the recent case involving asbestos in skirting boards which were installed at a children’s hospital. The resultant claims from such events have resulted in insurers requiring details around contractors import Q&A procedures to give comfort.
Optimising outcomes in a competitive liability market
Strengthen contract management
Review and update contracts to check that they align with insurance requirements and clearly allocate risk, in particular, ensuring contractual obligations flow seamlessly both upstream and downstream.
Improve document management
Maintain a robust filing system that allows rapid access to incident reports, safety records, and project documentation. Strong records will allow you to establish clear facts in the event of any issues, demonstrate regulatory compliance, control claim costs, and enable insurers to defend worker-to-worker claims effectively.
Enhance site-based risk management
Consistent site controls, clear safety procedures, regular inspections, well-documented Safe Work Method Statements, strong supervision, and prompt hazard reporting help prevent incidents and reduce claim severity. Insurers place significant value on visible, proactive risk management at a site level.
Engage proactively throughout the renewal process
Effective renewal preparation includes:
- Providing comprehensive underwriting information early
- Demonstrating robust risk management and contract governance
- Evidencing continuous improvement following past incidents
These actions support more accurate pricing, help maintain broader cover, and strengthen a policyholder’s negotiating position as market conditions begin to evolve.
Where possible, leverage strong claims performance and established insurer relationships, prioritising those with a stable, long-term appetite for construction risks.
Construction liability is a long-tail class, and underwriting corrections take years to impact loss ratios. This makes insurer stability crucial, moving insurers for short-term savings can be risky if the new insurer later withdraws or restricts cover.
Continue reading our full range of market updates:
- Insurance Market Overview: January 2026
- Claims
- Workers Compensation
- Corporate and Multinational Risk
- Construction, Property and Development
- Financial Lines
