Insurers make significant cuts to capacity

24 January 2019

Conditions in the international construction insurance market are set to get tougher as insurers make significant cuts to capacity.

The change in sentiment is most pronounced in the construction professional indemnity (PI) market, which has experienced significant hardening in 2018, with rising rates, a tightening of terms and conditions and increased deductibles.

As a result, there are important implications for the level of capacity clients can purchase, the level at which programmes attach and the cover available for difficult risk issues, like the use of external cladding.

The hardening of the PI market follows mounting losses and the continuing fallout from the 2017 fire at the Grenfell Tower in West London.

Capacity in London has been steadily shrinking as insurers have reviewed their portfolios – driven in part by the Lloyd’s performance review, which has resulted in a significant number of syndicates ceasing writing construction PI.

Further hardening of the construction PI market is to be expected, while tougher conditions are likely to spread more widely and beyond the London market in time.

Insurers’ renewed focus on underwriting profitability also extends to the construction and erection all risks market, which appears now to be transitioning from a soft to a hardening market cycle.

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A flurry of insurers in London have withdrawn from the international construction arena or have significantly curtailed their participation.

This trend has already spread beyond the Lloyd’s market, with a number of global players taking a hard look at their portfolios.

Capacity remains adequate but withdrawals in London are telling and there are now clear signs of tougher conditions ahead. 

Further withdrawals and reductions in capacity are likely in 2019, with the ripple effect to be felt well beyond London.

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