Insurance Marketplace Adds to Uncertainty for Contractors

Amid the stubborn coronavirus pandemic, institutional capital and developer investment has paused, forcing contractors to take a wait-and-see approach for their direction in 2021 and beyond. While the industry cheered the economic comeback of the third quarter after a record second quarter slowdown, developers and builders remain cautious, particularly in sectors deeply affected by the pandemic and the associated shutdowns – namely office buildings and hospitality. Well capitalized projects, including those funded by municipal bonds, appear set to continue on plan while other more speculative investments have been sidelined indefinitely.


The construction pause comes as the insurance industry has been hit by significant losses from the pandemic, a historically active hurricane season, and huge wildfires in California, Colorado and Oregon. Amid these and other losses, carriers are more reluctant to commit capital to the long-tailed construction industry. With less available capacity, the construction market is seeing some significant rate increases and encountering more challenges in securing project coverage. In this complex and highly fluid market, it’s more important than ever to work with brokers who have expertise in building cost-effective insurance programs.


The construction industry pumped the brakes amid an historic economic slowdown as the coronavirus spread throughout the Northeast in early spring and then through the South and West. Real gross domestic product fell at a 31.4% an annual rate in the second quarter, but posted a 33.1% increase in the third quarter, the Bureau of Economic Analysis reported.2

A number of projects that had received insurance quotes were delayed for several months, and some remained on indefinite delay. In addition to widespread caution about moving forward with projects in such an uncertain environment, builders have faced difficulties getting workers back on the job and long delays in obtaining required inspections and permits in some areas.

Materials costs are also playing a role as lumber prices soared due to high demand and lumber mill closures, and steel prices jumped after blast furnace shutdowns earlier in the year. On top of that, higher insurance rates and reduced capacity have made obtaining coverage more challenging. All of this has contributed to a slowdown in the anticipated pace of projects.

Construction Industry Statistics (source 4) THE GOOD Total Construction Spending Up 2.3% September from August Up 1.5% Year over Year (September) Private Commercial Construction Up 1.1% Year over Year (September) Private Construction Put in Place Up 2.4% Year over Year September Residential Construction Up 9.9% Year over Year (September) Privately Owned Housing Starts Up 1.9% September from August Up 11.1% Year over Year (September)   THE BAD Office Construction Down 6.8% Year over Year (September) Nonresidential Construction Down 6.0% Year over Year (September)  THE UGLY Starts on Projects 5 or More Units Down 17.4% Year over Year (September) Manufacturing Down 10% Year over Year (September) Lodging Down 15% Year over Year (September)

Declines in construction backlog may indicate the industry is in the early stages of a nonresidential construction spending downturn, the Associated Builders and Contractors reported in October.3 Housing demand, however, remains a bright spot, as many people have sought homes outside of urban areas because of the coronavirus lockdowns. Residential construction in Florida, for instance, continues at a blistering pace as the state lures hundreds of new residents daily from other states.

As demand for apartments and houses remains strong, transactional projects in the $20 million to $100 million range are moving forward, but developers are holding off on “jumbo,” billion-dollar-plus projects as they wait for clearer indications of market direction. Energy and infrastructure projects could get a boost if the federal government enacts additional stimulus packages. Still, as the economy recovers, construction activity overall is beginning to pick up. Money remains historically cheap, and despite delays, the project pipeline should remain robust.


With lumber and steel prices up sharply, so-called mass timber projects are gaining in popularity for large commercial and office buildings for reasons of sustainability as well as cost. After widespread adoption in Europe, the last decade has seen hundreds of buildings constructed with cross-laminated timber in the United States, particularly in the Pacific Northwest. Hundreds more are being built or planned and that is expected to rise exponentially in coming years. Modular building is also increasing in popularity as it enables easier on-site assembly of pre-built units, limiting dependency on a shrinking subcontractor pool. Assembling factory-built sections on site requires less space and sharply reduces labor costs compared with traditional building methods, though builders must anticipate insurance carrier skepticism until a proper track record with suppliers is established.4 These trends show the creativity and adaptability of our construction industry when faced with a myriad of challenges, and the insurance community needs to prepare to show equal creativity in offering project solutions for these exposures.


As carriers seek to manage their overall portfolios, they have become more selective in construction and have cut back capacity, while pushing rate. Specifically, lead excess layers are being reduced while the conventional $25,000,000 capacity layer participations on larger projects are being shrunk to smaller quota share placements. As the market resets, carriers are also more hesitant to offer long-term pricing and coverage commitments via Rolling-WRAP solutions so common over the past decade. The goal of insurers to charge more for their capacity is evidenced by the continued aggressive pricing of smaller limit CGL policies which stands strictly in contrast to the meaningful rate increases for excess capacity that tends to come in larger chunks. Further, given the availability of rate on favorable projects, there is a lack of urgency to support the more challenging sectors and venues, leaving contractors with increased insurance costs that are at times multiples of their projected insurance cost at the time of their bid. This dynamic may be best exemplified in the state of Florida, where the litigious climate and loss ratios have driven carriers out and rates sky high; particularly on the lead excess for residential projects. Other venues such as Colorado have also hardened meaningfully, while the West and Southwest are seeing milder rate increases and capacity withdrawals. New York remains a tough market, especially in the umbrella marketplace for residential, where it has become more challenging to find capacity for the first $10 million of coverage, making the layers above more cost prohibitive. In the Southeast, carriers that had been willing to extend $10 million in excess coverage have reduced that to $3 million to $5 million, particularly for residential.

Rolling wrap-ups and OCIPs have become challenging to place, along with wood-frame single-family and condo developments.


After an extraordinarily challenging year, the pace of building may remain subdued going into 2021, and project delays may remain a factor. Many projects quoted earlier this year have been moved into early next year. Developers and builders may decide to hold off on project starts depending on how the economy and specific industries are expected to perform. Still, the construction industry will find a way to adapt. In a low-interest rate environment, investors will continue to be drawn to real estate projects, whether they are residential, commercial, hospitality, infrastructure or energy.

Achieving the best, most cost-effective coverage will remain challenging. Communication is critical. Agents have to bring developers and contractors on board in setting achievable goals for their insurance programs. Putting project policies together may be more difficult in this market and will require greater flexibility. Deal structures are likely to be more complex than in the recent years when broader terms and higher aggregate limits were readily available. Rates are likely to be higher, terms tighter and capacity less plentiful. Agents should prepare clients to expect that it will take longer to obtain quotes and to expect delays and disruption between the time the project is quoted and bound.

High quality submissions are essential, particularly for more complex residential projects. The better the information provided to the carrier, the greater the chances of obtaining participation on a particular risk. Carriers will want exact and detailed underwriting information.

Submissions will be rewarded when thorough and markets respond well to receipt of the following:

  • Project Application
  • Budget
  • Site plan
  • Geotech/SOILS report
  • Schedule
  • Contractor Loss information
  • Contractor Internal QA/QC protocol
  • Contractor Site Specific Safety Manuals


Construction clients need to start with a realistic idea of the insurance market as they evaluate projects as the environment is dynamic. Rates have been moving higher and coverage enhancements may not be as readily available. In addition, agents and clients will need to work harder to convince insurers to extend capacity on their projects. In a rapidly changing market, the key to building a cost-effective program is working with the right intermediary. Brokers with deep knowledge of the construction industry and experience in designing complex insurance programs can help provide a solid foundation for the project. Contact your CRC Group producer for more information.


  • Evan T. Aldrich is the Office President of CRC’s Redondo Beach, CA office and member of the Casualty Practice Advisory Committee.
  • Nathan Levine is a Senior Vice President in CRC’s Boca Raton, FL office and active member of the Casualty Practice Group
  • Michael V. Yovino is an active member of the Casualty Practice Group and Senior Vice President in CRC’s Long Island, New York office.


  1. Monthly New Residential Construction, September 2020, U.S. Census Bureau.
  2. Gross Domestic Product, 3rd Quarter 2020 (Advance Estimate); Oct.29, 2020, Bureau of Economic Analysis,
  3. ABC’s Construction Backlog Slips in September, Contractors Remain Optimistic, Oct. 13, Associated Builders and Contractors, press release.
  4. As concerns over climate change rise, more developers turn to wood, the New York Times, Sept. 22, 2020.