Construction Professionals Insurance Market Update: January 2025

Construction Professionals Market Update
Simon Gray - Bellrock Advisory

Simon Gray

Since our July 2024 Market update, we have seen a continued return of capital for construction professionals’ risk – including Lloyd’s syndicates, as well as both new and returning Australian and international insurers. Although it now appears the insurer expansion in this space has reached its limits and we are almost at market saturation.

We are starting to see some “new” markets struggle with a finite and stable construction professionals target pool. Insurers’ budgets are also being adversely affected by competition and whilst some pre-existing insurer markets have been slow to respond over the last year, they are now joining the great premium reduction race.

That said, harder rates remain in difficult to place construction areas such as structural and geotechnical engineers, D&C, and certifiers.

We continue to urge caution when selecting an insurer as we feel that there is not enough premium in the reduced target pool to ensure longevity of all insurers in the market once claims materialise.

It is the reality of the construction industry that margins are, and continue to be, very tight. Contracting remains adversarial in nature, and both private and public funding is often difficult.  Construction professionals may find themselves brought into disputes which on their face appear to be construction/workmanship issues.

The cost of litigation is ever-increasing and large claims are inevitable. As such, we anticipate a potential knee-jerk reaction from some markets when claims arise as the newer insurers in this space have not yet paid a claim in the last 12 months.

We expect the return of the hard market sooner than first thought – perhaps in the next 3 years.

Insurance appetite and capacity

There continues to be ample capacity for SME businesses, with insurers looking to build their books within this perceived lower risk area of the market. Insurance rates are dropping for SME’s and we are seeing significant competition.

Insurers’ construction professionals’ appetites are as follows:

Insurer Appetite, Construction Professionals January 2025 - Bellrock Advisory

Insurer Appetite, Construction Professionals January 2025 | Bellrock Advisory

We continue to see increased competition in all areas which is a welcome relief after so many years of the hard market.

Certain activities and disciplines are still of concern for insurers with reduced capacity including:

  • High rise residential
  • Façades design
  • Design and Construct (D&C)
  • Certification
  • Complex infrastructure projects.

It remains vitally important for construction professionals to stand out from the crowd come renewal time. See our July 2024 Market update and article on renewal strategy here.

D&C PI & principal controlled professional indemnity insurance

D&C PI remains a difficult area. Increasing construction costs and reducing margins, together with some contractors’ reluctance to purchase appropriate insurance has resulted in reduced insurer appetite. Principals are continuing to push the PI risk down to D&C contractors’ PI insurance.

Relying solely on contractor arranged insurance presents risks for principals. Often contractors negotiate cover which is not favourable to the principal, and there may be no or limited cover if the contractor has breached its policy conditions or signed an agreement that breaches contractually assumed liability exclusions in PI policies.

Additionally, there always remains the possibility of the policy being eroded by claims brought by third parties other than the principal.

We recommend principals take out principal controlled professional indemnity insurance as a key part of a robust insurance programme.

Policy coverage and claims handling – beware the softening market

As we have seen in previous softening markets, the focus on market share and competition can have poor insurance policy outcomes for your business. New and returning insurers do not necessarily have the same level of market knowledge and experience as those who remained in the market and do not necessarily have the most appropriate policy coverage.

Similarly, they may not have the same level of experience in handling construction professionals PI claims, having been out of the market for some time.

Please see our July 2024 Market update for further information, together with some exclusion clauses to be wary of. Our next edition of Bellrock Insight to be released in February 2025 will include an article providing more detail in relation to these clauses.

Key issues

Some of the key issues at present include:

  • The building and construction industry remains the leading contributor to insolvencies. Large building companies that have signed fixed price contracts cannot afford to fulfil contracts without losing money due to increased costs. Debtor vigilance is fundamental to your business. Unfortunately, poorly funded projects with insolvent builders do increase claims against construction professionals as everyone involved is keen to access their PI insurance.

Please see some updated insolvency statistics below:

 

Construction company insolvencies 2024 Macquarie - Bellrock Advisory

Construction insolvencies by industry sector, FY2024 - Bellrock Advisory

 

  • In NSW:
    • The new Engineers Registration Scheme is up and running, however, the new Practice Standard has been delayed.
    • The Draft Building Bill NSW 2024, which consolidates 9 pieces of building and construction legislation is currently under review by Government.
    • We understand a further “third party” review process is already underway in relation to these delayed regulatory consolidation initiatives
    • Design and Building Practitioners Act 2020 (DBP) – whilst most construction professionals have adapted to the DBP we are hearing that the extra costs required to ensure compliance with the DBP are causing delays in the industry at an already difficult time when more units and houses are required in NSW and Australia at large. There is mention that the reach of the DBP may be pared back and another regulatory review is underway to help speed up construction
    • The following articles provide further information:
  • PFAS/PFOS/PFOA continue to emerge as new areas of risk in the construction and other industries. Safety in Design reports need to address these risks. For further information see here.
  • The industry appears to have adapted to the ban on engineered stone which commenced on 1 July 2024. See our article here for details.
  • We are seeing a return to Alliance contracting on large infrastructure projects and more enquiries for Alliance Insurance. It will be interesting to see if this trend continues as insurance capacity is reasonable in this space. See our article here.

 


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