Good news continues in relation to material damage over the course of 2025.
Conditions have continued to improve with increased appetite from insurers and new insurers entering or re-entering the market after withdrawing over the past 5 years. Premium rates have started to fall between 5 to 15 per cent in line with this increased competition, particularly for well risk managed customers. Insurers continue to request and review risk management policies and procedures as part of underwriting submissions to the market. Contractors with lower hazard activities and positive claims records continue to be preferred by insurers, and this is reflected in the terms and conditions achieved for those clients. In the sub $10M turnover market competition is fierce, driven by new market entrants and existing markets vying for what is considered lower hazard business.
Clients who have not invested in risk management, engage in high hazard construction activities and have poor claims records are unlikely to share in the above-mentioned fortune.
There remains a preference for Australian insurers, underwriting agencies and Lloyd’s of London to seek proportional participation on project placements. This is a continuing trend for insurers who prefer to reduce the likelihood being exposed to, large full limit loss on both single projects and annual placements where a larger limit is required. This proportional approach leads to longer lead times for advisors to negotiate consistent coverage on placements as underwriting information is analysed in detail across the commercial, industrial, and residential sectors.
In relation to sub limits of liability, advisors and clients need to consider their actual exposure to ensure that their insurance cover (including the sublimits applicable to a loss) is adequate for their specific needs. In softer market conditions, insurers were willing to accept a simple percentage of sum insured to apply to sub limits, however, they now wish to discuss the exposure prior to releasing such additions. Our recent article in relation to this trend can be found here.
The shortage of experienced construction underwriters in the market continues. This has led to a number of movements within the market, as insurers and MGA’s compete for talent. This instability does create opportunity for customers as underwriters seek to pursue opportunities for new business via their old portfolio of clients. This can result in further downward pressure on pricing.
We continue to experience delays in responses from insurers, due to the volume of their workload and the shortage of experienced underwriting individuals. This becomes particularly more prevalent in a softening market as some risk advisors seek multiple cheap quotes from all insurers to “block the market”.
Lloyds of London continue to be a stalking horse for local insurers. Whilst the local insurance market remains more competitive than Lloyds of London, this is beginning to shift. Recent pricing and terms received from overseas markets are occasionally catching local holding markets by surprise and pricing, terms and conditions may sometimes undermine the local market. We expect over the coming 12 months that Lloyds will become a big threat to local carriers. Lloyds are also supporting new MGA’s to deploy construction capacity to the local market. As noted above the unavailability of experienced underwriters could lead to poor performance of these facilities over time.
High rise residential construction
Increased activity in this sector continues. Developer and contractor experience is one of the key underwriting considerations and an ability to demonstrate experience on similar projects, project history, operating history, company structures and use of contractors/consultants are all assessed as part of insurer reviews.
iCert ratings are also considered in a positive light by some insurers. We should caveat that obtaining such a rating only provides insurers with confidence in the financial stability of the contractor and does not replace the need to demonstrate sound risk management.
Structural defects insurance (or LDI) has not experienced a great uptake by the market, but, continues to be pushed by government in lieu of developer bonds. The limited cover offered suggests that contractors believe they can manage such risk through improved business practices and have not seen any particular need for the additional expense of this cover. Reforms and the scrutiny of the building commissioner of poor work practices in NSW has provided insurers with more confidence in project delivery.
Enforcement action by regulators has eased however consumer sentiment has improved in relation to perception of quality in this sector.
Insurers have suggested that many current projects are seeing increases in overall construction costs and delays in completion.
Contractors should ensure that they carefully consider their project timeline when approaching the market to avoid any significant additional costs associated with policy extensions required due to delays in completion. We have noted many single project delays due to longer construction lead times, and in particular delays by regulators in issuing Occupation Certificates. This can lead to gaps between actual completion and the end of the policy period. In this scenario, insurers are effectively exposed to a 100 per cent loss whilst the building is vacant awaiting the Occupation Certificate so strata insurance can be arranged. This necessitates extensions to cover and additional premium costs. See our article here for further detail.
Insurer appetite in this sector is very dependent on the individual project and the participants. Where a strong submission is supported by experienced developers and builders, contractors can expect improved terms of pricing, coverage and deductibles.
Insolvency risk
We have seen an increase in developer and builder insolvency over the past 6 months. Market speculation suggests that insolvencies in the construction industry will increase in 2025. The insurance costs incurred as a result of insolvency are significant. Insurers will want to impose substantial premium increases and policy exclusions when approached to underwrite a partially completed or abandoned development site.
Administrators, creditors and financiers should consider insurance placement and strategy prior to an insolvency event to ensure that policies can be maintained and conditions imposed by insurers can be met.
Insolvency continues to be an active consideration for insurers. Material damage insurers would, in the past, rarely perform financial due diligence on proposers. However, such due diligence has now become a standard procedural task during the underwriting process with insurers asking for details of project status, particularly around delays in completion, as well as detail regarding costs escalation.
Infrastructure projects
Major infrastructure projects are underway at both state and federal levels, with road projects involving tunnelling and major static infrastructure projects in the pipeline.
Most of these projects continue to be placed on a principal arranged basis, with cover being placed on behalf of the contractor by the State Authority. This has often meant that the market is pricing a risk prior to knowing which contractor (or joint venture) has been awarded the contract. Insurers are therefore looking at the risks associated with the project in more detail given they are unable to fully underwrite the contractor undertaking the works.
Subcontractors are becoming more aware of the existence of principal arranged policies and seeking contractual indemnity under these policies. Whilst this is usually readily available to the subcontractor, often the deductibles on the primary policy are likely to be significantly higher than the subcontractor is accustomed to (or able to) pay. We have seen instances of deductibles exceeding $750,000. This often means the subcontractor will still wish to indemnify under their own policies on larger projects (and therefore pay full premium for ground up cover).
The complexity and value of infrastructure projects continues to increase. Insurers are taking a more conservative approach in capacity deployment, which will mean a greater number of insurers will be required to complete these project placements. Generally, this also requires capacity from both local (Australian) and international (Asia and London) insurers to complete the placement.
There has also been a renewed use of alliance contracting for complex projects. Whilst insurers are generally supportive of such contracting arrangements, it is important to engage with your advisors and the market early should alliance contracting be under consideration to ensure there are no significant issues from insurers in relation to the specific risk profile. Further information on alliance contracting can be found here.
Civil projects
Given insurer focus on weather related perils and the shift in atmospheric conditions to La Niña, insurers are taking a more stringent line on civil projects generally. Contractors in this sector will need to provide detailed weather management plans and risk mitigation strategies for underwriter’s review. Consideration should be given as to whether single project policies provide more opportunity to tailor cover and price to the specific geographical conditions and peril profile of the work site.
Water damage
Claims for water damage continue to rise in both frequency and value on insurers’ loss records, often arising from burst plumbing causing damage to the works under contract. Insurers are now asking for detailed risk management plans as part of submissions by contractors. Contractors are now expected to have a water management plan, and on larger projects physical water damage prevention measures to avoid the escape of water from new plumbing fixtures.
Project delays
We are observing significant delays in completion on projects generally across our client base. These delays are due to various factors including availability of trades, material shortages, regulatory (council) delays and weather-related delays. Insurers are generally happy to provide extensions to cover to accommodate such delays, but at a cost. Whilst this cost is usually a reflection of the original premium charged (on a pro-rata basis), it is often unexpected and unbudgeted. Policyholders should closely monitor their project timelines and consider whether annual policies with a blanket extension to the construction period should be sought (even if it comes at some premium loading) rather than seeking to extend cover following a delay, as often this approach will result in a lower cost overall.
It is also important to keep your insurers advised of any cessation of work (where such period exceeds 30 days) or where the project is complete but cannot be handed over due to the council not having provided Occupation Certificates for the works. In this case insurance remains the responsibility of the builder, but the insurance policy will have likely ceased to provide cover. More information can be found in our article here.
Claims
We have observed a significant variance in claims outcomes across our portfolio. Whilst some insurers continue to provide excellent and swift claims services, others have performed poorly. This could be because of the shortage of talent mentioned previously (which extends to loss adjusting services), or as a result of the insurer seeking to reduce their loss ratios.
It is important when considering your insurance partner that claims are a key consideration. Given the current market conditions, there are opportunities for reductions in price, however your business will benefit more from a claim being resolved efficiently and quickly (allowing you to get on with the job) as opposed to a small premium reduction at renewal and a poor claims service.
Summary
There are opportunities for pricing improvement in the current market. As is always the case, the two reasons such conditions cannot be exploited is due to a lack of time, and a lack of information. Contractors seeking improvement need to provide comprehensive information and allow enough time for options to be explored. It is difficult to obtain competitive, comparable pricing from the market unless there is enough lead time to engage and negotiate. Engagement with the market at least 2 months prior to expiry (even if this is without updated renewal information) is imperative to the renewal process to ensure potential markets are identified and are resourced to assist when presented with an underwriting submission for consideration. Customers should also consider how much time they need to consider the options provided.
As previously stated, Insurer selection remains key for the medium-term strategy of construction firms. Bellrock recommends partnering with a stable insurer (with a record of paying claims) and to seek enhancements to coverage and improved premium rates in the medium term by demonstrating sound risk management and low claims volumes as market conditions continue to improve over the next 12 months. Our experience suggests reductions are achieved as market conditions improve without the need to break a long-standing relationship. Often the incumbent insurer will meet the market on pricing where they wish to retain good quality construction business. Remaining with an insurer over the long term will reduce the volatility experienced when market conditions change.
Finally, contractors who are considering an alternative risk advisor to represent them should consider how they compare the offerings of different firms. We believe this process should be undertaken well ahead of renewal, and that customers should make their decision and appoint a single representative in the insurance market. Calling for multiple quotes will not improve your reputation with insurers in the market, and will not likely achieve the best result for your business.
Your Bellrock Advisor can help optimise your construction insurance strategy amid evolving market conditions. Contact an Advisor today
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
- Claims
- Workplace Risk
- Executive & Professional Risk
- Construction
