Construction industry growth will be driven by energy and utilities and infrastructure construction, which are expected to grow by 7.8% and 5.1% respectively in 2024, according to Willis Towers Watson (WTW) in their Q3 Global Construction Rate Trend Report. “Globally, infrastructure and energy and utilities construction have experienced the largest growth compared to their pre-pandemic levels, with energy and utilities growing by 34% and infrastructure growing by 33% compared to 2019 levels, according to Global Data,” the report states. However, “the residential sector will continue to struggle throughout the rest of 2024 and is expected to decline by 3.2% globally, according to Global Data,” the report notes.
Impact of Elections on Construction
“This year’s elections, which will impact half of the world’s population, is set to reshape global politics and could delay, cancel, or dilute numerous projects until the political landscape becomes clearer,” states the report. "This shift could significantly impact the construction industry in key countries including India, France, the U.K., Mexico, and the U.S., depending on the election outcomes. With economic hardship so prevalent, many politicians are offering to ‘spend big’ and cut taxes in a bid to gain power, potentially exacerbating global debt, which is already at record levels after substantial post-pandemic stimulus packages in wealthy economies.”
Projections in Construction
Despite the uncertainty regarding elections, the construction industry overall is projected to see growth, particularly in the infrastructure and energy sectors. The report also projects investment in manufacturing, particularly within the technology sector. “Significant focus will be on the development of projects including semiconductor facilities, gigafactories and data [centers] across various regions, most notably in North America, Latin America, and Europe.”
Furthermore, “We are now observing capacity levels similar to those seen at the top of the last soft market cycle in early 2019 in most regions in the construction insurance market and in most commercial lines of business,” states the report. “We expect this positive trend to continue during the second half of 2024 and into 2025…due to increased interest from insurers in maximizing deployment of local capacity along with an influx of new capacity as entrants establish themselves, including renewed interest from internationally based insurers and reinsurers and returning former market players.”
Pricing across most regions and product lines is expected to remain stable this year, the report notes. “This stability will result in favorable single-digit discounts for certain high premium volume programs, renewals, and one-off projects. In these cases, the client’s reputation, low loss history, long-standing relationship with the insurers and comprehensive risk controls is fundamental to achieving the best results possible.”
Lastly, “quality underwriting information and a strong loss history are crucial for achieving optimal outcomes. In this context, brokers are more essential than ever. They play a vital role in presenting risks to insurers and providing analytical data that guides markets toward the most suitable solutions and program designs. Effective management and strategic insight are key; without these, clients risk facing policy restrictions or higher ratings. Brokers’ expertise ensures that clients secure the best possible terms and conditions, aligning with all stakeholders’ expectations,” states the report.
North America
“In the face of persistent economic headwinds, the resilience of the insurance market [in North America] is noteworthy,” states the report. “Recent adjustments have fostered improved loss ratios and a more stable rate environment, demonstrating the sector’s adaptability…. Contractors and their brokers face the ongoing task of balancing persistent rate increases driven by inflation, litigation costs, and risking nuclear verdicts, with the specific loss experiences and risk management strategies of each account.”
The insurance landscape overall, the report continues, “is evolving with new market entrants challenging the status quo. In the face of evolving industry trends, contractors dealing with high-risk construction exposures are finding innovative ways to manage risk.” Furthermore, “contractors are prioritizing employment practices to attract talent, investing in training for quality and safety, and adopting technology for risk mitigation.”
According to the report, “Although traditionally slow to adopt new technologies, the construction industry is now showing a heightened interest and investment in technological solutions to address labor shortages, enhance operational efficiencies, and capture data more effectively. Larger and more sophisticated contractors are using technology to reduce losses, relying on data analytics and performance indicators to improve outcomes and enhance risk profiles.” The report emphasizes that the industry is expected to increase its use of technology, adopting drones, wearables, and robotics.
Coverage in North America
Project-Specific Programs and Controlled Insurance Programs (CIPs)
“Construction Project Insurance is beginning to experience a stabilization after a long, rocky hard-market cycle. It is safe to say that this stabilization is largely due to the new norm of witnessing massive construction projects readily introduced into the insurance marketplace,” states the report. “There has been a jump in spending on data center construction as well as life science facilities both being desirable risks for the insurance marketplace. Additionally, several mega manufacturing projects remain in the pipeline for this year.”
The exception, however, to the favorable placement result, “continues to lie with for-sale residential, coastal, mass timber or wood frame builds,” notes the report. “Despite the challenges these construction risks face, there is not a trend of decrease in these projects being introduced…the reduction in construction spend appears to be in the traditional nonresidential space while office construction spending remained flat and highway and street spending slightly decreased.”
The report emphasizes that, despite the growth, the construction industry is “still dealing with challenges such as increased interest rates, rising costs of materials, shortages of skilled labor, and operational efficiencies, particularly with the growing use of AI. For these reasons, buyers of construction insurance expect alternative solutions for covering their risk as an avenue for decrease in financial burden. The stabilization of rates for OCIPS, CCIPS, and other project-specific programs continue to allow for optimal insurance coverage, streamline claims handling, and savings for all parties involved.”
Types of Insurance
- General liability (GL) insurance for many contractors has maintained a level of stability. As supply chains have gradually aligned with demand, the urgency to adopt alternative building materials and methods has decreased.
- Workers’ compensation remains one of the most stable and reliable sectors within the property and casualty insurance industry. It consistently outperforms other major lines due to its predictability and security.
- Professional liability (PL) insurance in the construction sector continues to be competitive, maintaining stable premium rates for a broad range of exposures.
- Subcontractor default insurance (SDI) expanding across North America. As financial pressures persist and project complexities increase, stakeholders such as owners, developers, and general contractors are increasingly relying on SDI programs.
“The total capacity for most contractor risks in the U.S. remains robust, exceeding $300 million,” states the report. “This capacity bolstered by contributions from new market entrants and additional capacity may be accessible through markets in London and Bermuda. However, capacity for project-specific placements is more limited as many insurers reserve this for practice or annual clients.”
As far as availability and terms, most coverages are available from most insurers, according to the report, although approaches vary, especially concerning certain coverages. “Insurers assess each risk individually, focusing on contractual controls and the prequalification of designers. Attention is often required for specific contract and policy language, including limitations of liability provisions.”