Despite taking many corrective actions, insurers underwriting risks in the Canadian construction market have not yet regained profitability in this segment.
Construction contractors should thus expect to pay more for insurance coverage. Risk underwriting capacity is also slow to rebound, Aon mentions in its mid-year review of the commercial insurance market.
Aon brokers have noted 15 to 20 per cent increases in the Canadian construction insurance market in recent months. “However, if the account has underperformed and needs rate correction, increases of 50 per cent or greater have been seen," the report reads.
For some projects, construction insurance premiums have even increased by 100 per cent over a year. Deductibles are also higher. Aon brokers add that takes a lot of effort to get that kind of coverage.
“Underwriters are managing capacity and deploying where terms are most favourable and will not put up disproportionate amounts compared to other underwriters. Capacity is being closely managed in natural catastrophe zones. The cost for capacity will not see a reduction in 2021,” the brokers project.
Canadian insurers getting tougher
Domestic insurers are more stringent in the terms and conditions they offer, Aon continues, to the point that it may be more advantageous for a construction contractor to negotiate insurance coverage in the London market. Canadian carriers “with good relationships are still showing support. The London market remains a go-to option for casualty renewals and wrap-up projects,” the brokers explain.
Which risk segments are the most complicated to cover? Hot roofing exposures, snow removal contractors, and frame (unprotected) are risk classes where underwriting capacity is becoming limited, Aon brokers say.
Hub, another industry watcher, noted issues with subcontractor non-performance earlier this year. “General contractors that opted for Subcontractor Default Insurance (SDI) instead of surety bonds to cover losses on subcontractor performance could find themselves in a weakened financial position,” the insurance specialist says.
Under the traditional SDI model, general contractors assume sole responsibility for the subcontractor prequalification process, and typically assume a significant “first loss” deductible as part of their SDI program, Hub explains. Subcontract surety bonds, in contrast, involve third-party pre-qualification and typically transfer all of the financial risk to the surety.
Additional pressure
Construction contractors are facing another uncertainty, Aon brokers add: The impact of changes to the Building Code. “Revised CCDC (Canadian Construction Documents Committee) requirements mandating liability limit changes from $5M to $10M will have the potential of causing supply and demand constraints,” the review predicts.
That is why it is important for a construction contractor to demonstrate its risk control procedures, the brokers say. “Loss control mitigation is paramount to the attainment of positive terms and conditions. Good quality pertinent and focused underwriter information is required. Timing remains critical as discussions are lengthy and arduous to obtain a result in this market.”
Learn more
- Additional capacity on the horizon in the Canadian market
- Commercial Lines: Market segments can expect 40 per cent increases in premiums
- Hospitality: New premium increase in sight
- Insuring the manufacturing sector still complex
- Insurance for Quebec’s indigenous communities still scarce
- Real estate: Premiums on the rise, despite added capacity
- Cyber risks: Ransomware ramping up rates
- Trucking: Insurers still heading for the exit
- Insurers continue to exit the forestry market