Construction insurance market trends: Australia

Construction All Risks

Construction All Risks

Despite a number of insurer mergers and acquisitions in the past years, new entrants to the Australian market have ensured that capacity remains at high levels and as such premium rates remain extremely competitive.

There is a higher number of principal arranged insurance policies being procured in the Australian market than ever before, making it difficult for insurers to rate projects on the claims experience on the contractor and they must be rated on the merit and risk associated with the project. This has led to continued downward premium pressure.

Given the mismatch in rates in the direct market versus reinsurance, brokers are requesting insurers nett capacity line on accounts to ensure pricing is led by underwriters on the ground and not reinsurers locally and internationally.

Mega projects have seen some capacity issues particularly where contractual conditions require prolonged insurance periods including guaranteed maintenance. Principals are now more likely to request the highest level of cover based on past experience irrespective of whether the project warrants such cover, or the premium pool makes is achievable. This has seen some single projects being placed with a higher number of carriers than would have been expected in the past 12 months.

Annual “floater” renewals have remained relatively stable and whilst a number of insurers are seeking premium increases, desirable business is being snapped up by competitors to keep pricing stable, which we would expect to continue at least until the end of financial year (30 June).

Construction Liability

Construction Liability

Carriers are continuing to show desire to participate on both a primary and excess capacity basis in respect of liability. Companies that can demonstrate good risk management practices, low claims experience and have an appetite for higher retentions continue to achieve good renewal outcomes

Mid-sized contractors ($50M to $400M) are generally experiencing flat renewal outcomes.

Small Contractors (>$50M) are being targeted by insurers for remediation and whilst they have for some time enjoyed low deductibles, low premiums and ever broadening wordings, insurers are now looking to increase pricing on a primary basis.

Excess liability markets have stabilised somewhat and are now looking to increase their rates on multiyear project placements. This is being driven by head office actuaries who want better returns on their capital outlay.

We do not expect significant shifts upward in this market segment in the short term.

Professional Indemnity

Professional Indemnity

There is pressure on both pricing and coverage in respect of this class, particularly where large limits are being purchased. Insurers are seeking to either reduce the limits provided on risks, or at least ventilate their capacity to avoid large primary losses.

Construction risks where large limits are being purchased are finding available local capacity limited and have to locate capacity overseas. This has created a situation in some cases where the foreign capacity dictates a deterioration in terms; “the tail wagging the dog”. It is of upmost importance that any large project placement strategy carefully considers the available local capacity and how overseas terms may adversely affect the overall coverage on offer.

Annual PI policies have seen exclusions applied in respect of non-compliant cladding in various forms – some more onerous than others – and there does not appear to be a combined industry approach to covering compliant cladding. Insureds who utilise cladding should carefully examine what their incumbent insurer is offering versus what is available in the marketplace.

Express fitness for purpose coverage continues to be difficult to achieve on an annual basis however given this stance has existed for 12 months, most insureds would now be used to this reduction in coverage.

Insureds with upcoming renewals should carefully consider their needs and try to align themselves with an insurer who is likely to provide long term stability to their business, rather than short term price cuts.

Motor, Plant & Equipment

Motor, Plant & Equipment

The class has remained relatively steady over the past 24 months but is starting to show signs of distress. Insurers are trying to push through modest increases and using claims experience discounts (CED) - where the client receives a rebate for the previous year if they have had good claims experience subject to renewal – as a retention tool. This is driven by registered motor vehicles claims costs continuing to increase as vehicles become more costly to repair.

The Australian climate conditions have been relatively stable in the past four years and the summer storm season has been relatively benign. This has avoided any significant one off losses being experienced by insurers in respect of hail, flood or bushfire. Quarter one is usually the most volatile period in Australian climate so insurers are cautiously optimistic that another horror season has been avoided.

Storage risks continue to be difficult to insure, particularly due to hail events on the east coast of Australia. These risks have seen significant (50% +) spikes in pricing, or large retentions being put in place for hail exposed locations – even where protection exists.

There is still a preference to place plant and equipment under a contract works policy where no road risk exists, as this is generally a more cost effective way to cover plant in Australia.

Long term clients will be rewarded for low claims frequency and severity, with claims experience being the main rating tool used by insurers to calculate premium. Demonstrable, organisation wide and entrenched risk management further assist in keeping costs minimised over time.



For the most part, the marine market continues to provide premium reduction opportunities across the portfolio, with the exception of property insured with hail or storm exposure (storage risks).

As a truly global insurance class, where policies can be purchased anywhere in the world, marine has the most abundant capacity and therefore is mostly immune from localised losses.

However the combination of local and international hail and storm losses from cyclones in Australia and a horrendous hurricane season in the USA have had an impact on pricing and capacity to particular accounts where that exposure exists.

Whilst inland transit is usually provided (without additional cost to the client) under a construction all risk policy, large project placements (including associated delay in start-up cover) have been available when required at competitive rates. This has been subject to full underwriting information and precise location details to assist with insurers catastrophe modelling.

Over the medium and longer term, with the continued increase in infrastructure and large one off projects in the Australian market, we expect no significant shift in marine pricing or coverage in respect of construction activities.

D&O Liability

D&O Liability

This market is no longer operating in two speeds. Insurers have been increasing premiums across the board and reducing capacity wherever possible. Clients are experiencing double digit increases for most renewals. Privately owned and operated companies, who purchase lower limits and do not require side C cover are seeing more moderate premium rate increases while publically listed and traded companies are experiencing both coverage reductions and much more significant premium rates increases.

Insurer mergers have resulted in a contraction in capacity. This is particularly relevant in respect of publicly listed entities. This has caused more significant rate increases across the market. Most boards are now becoming concerned about potential claims and legal defence costs and wanting to purchase higher limits at the same time as a contraction in capacity as occurred and the supply/ demand price point has spiked.

Any client with significant claims should expect a significant uplift in premium with some unable to secure coverage as expiring when renewing their policy.

This increase in premiums is likely to continue for some time while the claims activity (particularly shareholder class actions) remains high.