(Sources 3, 4)

While the COVID-19 pandemic lasted longer and had a larger impact than anyone initially imagined, the haze of market uncertainty and fear that accompanied it is now steadily dissipating. New York construction activity has steadily increased over the last year, and underwriters are currently quoting and binding all classes of contractors in NYC.

HOW THE MARKET EVOLVED THROUGH THE PANDEMIC

As moratoriums began to lift in the 2nd quarter of 2020, workers returned to construction sites but faced hurdles around social distancing and maximum occupancy guidelines. For example, if the heating and air conditioning contractor was on-site to rough in ductwork, plumbers couldn’t start work until the HVAC crew was finished, leading to delays in project completion.² Over the 3rd quarter, annual practice policies for trades and general contractors were still binding at pre-pandemic levels; however, designated project policies didn’t immediately return. The pandemic guidelines surrounding construction worksites continued to add to the logistical delays for any new construction project because the number of subcontractors allowed on-site at any one time was still limited. These changes significantly hindered larger builds, and very few new projects were launched.

In the final quarter of 2020, project submissions once again began making their way through the insurance marketplace. Even though larger project applications were submitted, there was still no firm indication of when construction would actually begin. COVID restrictions had a much bigger impact on such projects because it was a much more daunting task to coordinate dozens of subcontractors in adherence to pandemic guidelines. This meant that most of the projects launched by the end of the year were smaller (less than $15M in hard costs).

As the pandemic restrictions eased and vaccination levels increased over the 1st and 2nd quarters of 2021, larger projects started to take shape. In March 2021, New York Mayor Bill de Blasio announced that he was resuming construction on $17 billion worth of public projects previously paused during the pandemic, including schools, affordable housing, parks, streetscape improvements, and sewer upgrades, creating a sense of business as usual throughout the NYC construction space as most contractors return to pre-pandemic work levels.⁴

INSUREDS SHOWING SIGNS OF STABILITY

Initially, no one was sure how the construction industry would fare in a state hit especially hard by COVID-19. Unsurprisingly, a few accounts were lost when contractors were forced to halt projects or close their doors. In addition, some accounts chose to move to carriers providing CGL coverage that excluded “ongoing operations” to maintain continuity of coverage at a lower premium cost. In light of the pandemic, many in the insurance industry also expected clients to attempt renewal at half of their typical exposure, but only a few showed decreases in gross receipts, and the majority provided similar or increased exposures for the upcoming renewal year when the moratorium lifted in June 2020.

Unlike the Great Recession of 2008, where construction and housing drove the economy down, it’s anticipated that the construction industry will play a key role in bringing the U.S. economy out of the downturn caused by the pandemic. While the recovery may not be swift, markets are showing resilience, and housing data is good, providing evidence of an economy on the rebound.²

POST-PANDEMIC COMPETITION ON THE RISE

In the years before the pandemic, the New York construction market was notoriously underserved by insurers with many underwriters and brokers citing the state’s strict construction labor laws as deterrents to providing coverage. It wasn’t impossible to find coverage, but capacity was tight, rates were steep compared with surrounding states, deductibles were significantly higher, and only a few insurers participated in the market.¹ But, since 2018, and especially since the end of 2020, at least half a dozen new markets have emerged in New York, and all of them are quoting aggressively, leaving no lack of capacity for trades, GL, or projects.

Articles written after the New York construction moratorium ended and restrictions began to ease, told tales of rate increases across all lines nationwide; however, this didn’t prove true for NYC construction. New York isn’t typically seeing any significant rate increases for specific classes or lines because rates had already increased dramatically over the last 10 years in a long-term market correction, leaving little room for further rate pressure. Carriers in the New York marketplace that lost business during the first few months of the pandemic quickly began making up for the lost time by aggressively quoting rates that were at times significantly lower than expiring. In addition, new carriers decided to begin writing New York contractors, and while many offer lower rates, they often lack expertise around New York’s unique applicable labor and construction laws, which can pose significant issues for policyholders. Several newly formed MGAs offering products in the New York construction arena have also popped up at the end of 2020 and in early 2021, further reducing rate pressure.

BOTTOM LINE

The haze of market uncertainty and fear that accompanied the COVID-19 pandemic is steadily dissipating, and New York construction activity continues to rise. Underwriters are currently quoting and binding all classes of contractors in NYC as insureds show signs of stability and market competition increases. Since the end of 2020, at least half a dozen new markets have emerged in New York, and all of them are quoting aggressively. New York isn’t typically seeing any significant rate increases for specific classes or lines because rates had already increased dramatically over the last 10 years in a long-term market correction, leaving little room for further rate pressure. In addition, new carriers decided to begin writing New York contractors, and several newly formed MGAs offering products in the NY construction arena have also popped up at the end of 2020 and in early 2021. Partnering with a wholesale broker that specializes in the nuances of New York contractors can make a world of difference in a client’s results. Contact your CRC Group producer for more information.

Contributor

• Kieran Xanthos is President and Chief Underwriting Officer of Prime Specialty, Inc. Kieran has more than 30 years of experience underwriting construction in New York and the surrounding states.

ABOUT PRIME SPECIALTY

Prime Specialty, Inc. is a Managing General Underwriting (MGU) company, and CRC Group subsidiary focused on providing Commercial GL and Excess Liability coverage for contractors domiciled in New York, New Jersey, and Connecticut. Unique in their ability to provide full coverage for NY contractors, Prime Specialty underwrites Commercial General Liability Business on behalf of AM Best A VIII and A++ XV rated carriers for accounts ranging from $25K to $1M+ in premium. Agents and clients will find that Prime Specialty handles coverage including annual policies for Artisan/ Trade Contractors and General Contractors, OL&T, Garage/Garage Keeper's, and multi-year Designated Project policies.

ENDNOTES

1. Labor Laws Escalate Insurance Costs for New York Construction Projects, Business Insurance, November 4, 2018. https://www.businessinsurance.com/article/00010101/NEWS08/912324935/Labor-laws-escalate-insurance-costs-for-New-York-construction-projects
2. Building a Post-Pandemic Construction Market, Insurance Journal, June 15, 2020. https://www.insurancejournal.com/magazines/mag-features/2020/06/15/572065.htm
3. Report: COVID-19 Cost NYC Construction Industry $9.8 Billion, Construction Dive, June 2, 2021. https://www.constructiondive.com/news/report-covid-19-cost-nyc-construction-industry-98-billion/600766/
4. New York, NY, Cumming Insights, 2021. https://ccorpinsights.com/regional/new-york/