Trends in Construction Risks That Every Insurance Industry Professional Should Know

We are in the midst of one of the most intriguing markets in recent memory for the construction industry. The growth of the past few years is trending to continue – but at a slower pace. In addition, costs are increasing, up an average of 2% according to industry studies. Combine that with supply chain disruptions and new environmental obligations, businesses operating in this space are navigating a complex landscape.

For construction business owners, insurance agents & brokers, and risk managers, understanding these trends and the role of tailored insurance solutions is crucial in staying protected and competitive. In the following, we’ll explore key construction risks and how specific types of insurance are evolving to address them.

Emerging Trends in Construction Risks

1. Supply Chain Disruptions

Recent years have shown how vulnerable supply chains can bring entire projects to a halt. Delayed delivery of materials, rising costs, and scarcity of key resources havebecome frequent challenges. These disruptions can lead to project delays, cost overruns, and contract breaches, significantly impacting a company’s bottom line.

Coverage Trends: In the Builder’s Risk insurance market, capacity increased slightly in 2024 compared to 2023. However, underwriting is still tight, with concerns on weather risks, construction delays, supply chain issues, and project delays remaining as key factors driving the market. Policy extension discussions are likely to remain prevalent in this market. And finally, the For-Rent Construction market may be seen as “less favorable” by some insurers.

2. Labor Shortages

The construction industry is grappling with an aging workforce and a shortage of skilled labor. Recruiting and retaining talent is becoming exponentially harder as demand rises. Labor shortages are leading to project delays, increased wages, and high turnover costs, affecting overall profitability.

Coverage Trends: While there is not a specific insurance product that applies here, the industry should still be aware of issues related to Employment Practices Liability (EPL) – and understand their risks and options. Issues around age-related employment, employee conduct, and job-related discrimination are seeing increased claims costs, with retaliation and sexual harassment claims leading the way in 2024.

3. Tech Integration and Cyber Risks

The adoption of construction technology – from Building Information Modeling (BIM) to AI-driven project management tools – is revolutionizing how projects are executed. However, with greater reliance on technology comes the growing threat of cyberattacks, data breaches, and system malfunctions. Cyber incidents can lead to stolen intellectual property, costly downtime, and compromised client information.

Coverage Trends: Concerns with the Internet of Things (IoT) and the related risks of connected devices and data are driving two factors in this segment – business interruption risks and policy limit concerns. Standalone cyber solutions are likely to be sought out more frequently, as endorsements may not adequately address theseneeds. However, the marketplace has tightened in recent years, as increased frequency and severity is reducing capacity and impacting reinsurance concerns.

4. Environmental Liabilities

Environmental regulations are tightening globally, holding construction companies accountable for their impact on the planet. Issues like improper waste disposal, pollution, and groundwater contamination may lead to fines and legal claims. Environmental violations can result in regulatory penalties, cleanup costs, and reputational damage.

Coverage Trends: With an increased focus on green construction trends, stricter regulations, and the impacts of weather-related events on environmental risks, the market is seeing challenges increase. Applying risk assessments and understanding the potential for environmental impacts and pollution concerns are critical when discussing coverage options. Unique solutions from the E&S market are vital to the growth in this sector.

5. Controlled Insurance Programs (CIP)

CIP – or consolidated policies for contractors and subcontractors – have seen increased popularity and may help provide streamlined options for projects. A CIP policy can provide greater purchasing power, lowering risks by obtaining comprehensive construction insurance coverage at a lower cost.Coverage Trends: While commercial-grade projects continue to get interest from carriers, for-sale, wood-frame, and specific location developments (e.g., New York metro, coastal, etc.) remain challenging for carriers.

What’s Next?

The construction landscape will continue to evolve, bringing both new opportunities and challenges for businesses to address. By staying proactive and aligning with industry-specific insurance solutions, construction companies can safeguard themselves against a range of vulnerabilities that would otherwise derail their projects and financial goals.

This is the time for agents and brokers to come to market with a more complete riskstrategy, ensuring your clients are both protected and positioned for success in a fast-changing marketplace. Whether it’s safeguarding against cyber threats, mitigating environmental liabilities, or preparing for supply chain disruptions, the marketplace is continuing to evolve and the challenges and opportunities are evolving along with it!