The insurance industry is traditionally characterised by an underwriting cycle, comprising of alternating hard and soft markets, each typically lasting between five and ten years. In 2024, we observed the first signs of the market softening after a prolonged period of premium increases, strict underwriting standards, and reduced capacity, as insurers sought to correct their portfolios and restore profitability.
Since 2024 a significant surplus of capacity has emerged, with both new and established insurers re-entering lines of business they had previously exited. Premium rates have fallen by 10 to 15 per cent on primary layers, and underwriting criteria has relaxed for well-managed risks, though insurers remain cautious toward contractors with poor claims histories. In addition to lower premiums, there is now greater flexibility to negotiate broader coverage than in recent years.
International markets, particularly London-based insurers who had previously exited Australia, now view the country as a growth opportunity. This has intensified competition and placed additional pressure on local insurers to remain competitive. As of the first quarter of 2025, these trends are expected to persist.
However, there are suggestions that this cycle may be shorter than usual, driven by current global economic factors such as declining interest rates (prompting capital to exit the market in search of more profitable investments) potential impacts from President Trump’s tariffs, increasing geopolitical tensions such as in the Middle East, and the Ukraine-Russia conflict.
Regardless of the insurance cycle, there are factors which influence the availability of construction liability coverage as summarised below:
Long-tail claims and insurer stability
A key consideration for construction companies is the long-tail nature of liability claims, where claims may arise years after the policy period ends. Remedial actions taken by insurers—such as premium increases, higher excesses, or coverage restrictions—will not yield results for several years. This delay underscores the importance of selecting insurers with strong financial stability and ongoing commitment to the sector. Changing insurers solely for a premium discount can be risky if the new insurer later exits the market, potentially leaving policyholders without commercial leverage when claims eventually surface.
Persistent challenges in risk appetite
Despite the softening market, certain risks remain unattractive to insurers. The construction contractor sector, especially those specialising in residential high-rise developments, continues to face limited appetite from local markets due to a decade of unprofitable underwriting. Trade contractors, particularly in plumbing and fire services, are encountering significant difficulties securing adequate coverage, largely due to a surge in water damage claims. The financial impact of water damage is substantial, encompassing structural repairs, mould remediation, and business interruption.
One recent example highlighting the potentially devastating costs of water damage was the flooding of multiple floors of a new $400M residential tower at The Star Gold Coast. The water damage arose from a significant water leak which is anticipated to have caused tens of millions of dollars in damage.
Skilled labour shortages and safety concerns
The Australian construction industry is grappling with a severe shortage of skilled labour, driven by an ageing workforce and declining interest in vocational careers. BuildSkills Australia reported in March 2024 that 90,000 new tradespeople were needed by year’s end, but hiring has fallen well short of this target. This shortage has led to slowed project timelines, increased costs, and heightened safety concerns on job sites which is linked with an increase in injury claims.
Worker-to-Worker Claims
Worker-to-worker claims are a significant and growing issue 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 site and seeks compensation from another party involved in the project, such as the principal contractor. The average cost of such claims is approximately $400,000.
To mitigate these risks, insurers are imposing higher deductibles (ranging from $200,000 to $250,000) or excluding liability for these exposures altogether. Several factors contribute to the rise in claims:
- Escalating Claim Costs: There has been a notable increase in both the incidence and cost of workplace psychological injury claims in NSW, with the average cost nearly doubling since 2020. Only half of workers with psychological claims return to work within a year, compared to a 95 per cent return to work for those suffering with physical injuries. The NSW government is proposing reforms to the workers’ compensation system to address this cost impact and poor return-to-work outcomes for psychological injuries. If enacted, these changes could significantly limit the types of claims available to workers in NSW. More information is available here.
- Growth of labour hire: The rise of labour hire arrangements creates complex scenarios where injured workers may sue host employers or other contractors for negligence.
- Increased worker awareness: Workers are more informed about their legal rights and the potential for better compensation through worker-to-worker claims compared to standard workers’ compensation schemes.
Policy exclusions
Exclusions for bodily injury and property damage related to PFAS liability exposures and chemicals such as silica, have now become standard. These exclusions mean businesses are uninsured for third-party claims arising from these hazards (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.)
Contractual liabilities
Contractual liabilities are also under greater scrutiny. Insurers are focusing on risk allocation within contractual provisions, particularly in relation to upstream and downstream counterparties. 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.
Particular attention should be paid to the inclusion of principals as “joint named insureds” and the exclusion of proportionate liability or blanket indemnities which could see a claim rejected by an insurer. Contracts with principals are generally becoming more onerous and need to be more heavily negotiated prior to acceptance to ensure your policy of insurance responds as expected.
Cyber, privacy and environmental risks are now being transferred to contractors by principals, with a general liability policy often not providing adequate protection. Contractors need to be aware of the risk they are carrying by accepting indemnities in relation to data breaches resulting in loss of client data, and environmental clean-up costs.
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 ahead of execution, ideally with input from legal advisors. Your risk advisor’s role is critical in ensuring compliance with insurance provisions and identifying uninsured or uninsurable exposures.
Looking into the future – strategies for optimising insurance renewals
Policyholders should work closely with their risk advisor to identify areas in which it may be possible to broaden coverage.
1. Strengthen negotiations
Capitalising on existing relationships both with your risk advisor and your current insurer, especially if you have a strong claims history, will give significant leverage during renewal discussions. The current underwriting cycle is unlikely to persist indefinitely, so it is wise to align with an insurer with proven stability and commitment to your business.
2. Consider alternative markets with care
Exploring options beyond your current insurer is advisable only in specific circumstances, such as a change in underwriting criteria, unfavourable renewal terms, or following a major loss.
3. Engage proactively throughout the process
This includes:
- Providing comprehensive and detailed information about your risks and exposures thereby helping insurers better understand your business leading to more competitive pricing.
- Highlight risk management practices and invest in robust contract management to avoid uninsured or uninsurable exposures.
- Show continuous improvement. No one is impervious to claims, however, demonstrating that you have learned from past claims and have implemented improvements is essential for securing the best outcomes.
Continue reading our full range of market updates:
- Insurance Market Overview: July 2025
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- Commercial General Liability
- Motor
- Contractors Plant & Equipment
- Renewable Energy
- Strata
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- Workplace Risk
- Executive & Professional Risk
- Construction
