Canadian Underwriter

Where brokers writing construction coverage may see bottlenecks

March 31, 2023   by Philip Porado

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A significant rise in construction projects being submitted in Canada means lead underwriting time is critical, according to a 2023 Q1 Global Construction Rate Trend Report from WTW.

“Staffing shortages and underwriting approval processes are causing delays in quote turn-around,” the report said.

“Underwriting submissions must now include detailed specification and fire rating on insulated panels as it directly impacts capacity being deployed by the [Course of Construction, also known as Builder’s Risk Insurance] COC underwriters.”

Meanwhile, in the face of recent treaty renewals between insurers and reinsurers, WTW noted project locations with Cat exposures “are seeing increased Cat peril deductibles and more recently with capping of Cat aggregate limits.”

The increases aren’t surprising given the trend of increasingly severe weather-related insured losses in Canada. Such losses for severe weather events across Canada hit $3.1 billion in 2022, the third costliest year on record for Canadian P&C insurers.

Plus a recent sigma study from Swiss Re Institute noted a trend of a 5% to 7% average annual increase in insured losses over the past three decades, due mostly to rising severity of losses resulting from primary and secondary perils.

Applying that math to Canada would mean this country could theoretically see $155 million to $217 million more in losses every year. So, in less than five years, Canada’s ‘new normal’ could be $4 billion a year in severe weather-related losses.

Elsewhere, WTW’s report noted “domestic wrap-up liability capacity remains strong with the exception of residential projects, where London capacity is a must.”

Wrap-up liability is a key coverage for larger construction projects since it brings all companies involved — including architects, engineers, general contractors and tradespeople — under a single policy. This means general contractors don’t have to worry if each subcontractor, of which there can be more than 100 on some projects, has enough coverage.

Across North America more broadly, WTW said an influx of capital into the construction market, compounded by increased competition for quality risks, means “the market has shown increased trend towards flexibility in pricing and coverage offerings.”

While this increased insurer competition may yield better renewal results, incumbent partners continue to be an attractive option on most annual renewals.

“Often the familiarity with the contractor’s operations provides incumbent insurers a level of confidence that allows for increased underwriting flexibility,” WTW’s report said.

Auto liability also is causing profitability problems for P&C insurers with the increase in nuclear verdicts creating significant pressure. “There is no indication that this will improve,” said WTW.

“Driver shortages continue to force contractors to utilize younger, often less experienced drivers,” the report added. “While this is not directly correlated to an increase in losses, as of yet, it is expected that the reduction in driver experience will put upward pressure on loss results.”


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