Bill Creedon, Global Head of Construction, and Maria Sanchis, Global Head of Construction Broking, discuss the current market conditions for the construction insurance marketplace.
Global Construction market insights
Hear from our experts and learn more about the latest insurance marketplace trends
Transcript:
Global Construction market insights
0:03
Welcome to WTW's Global Marketplace Insights series, where our
experts bring you the latest risk and insurance perspectives.
0:19
Hello, I'm Bill Creedon.
0:21
I'm the Global Head of Construction for WTW.
0:24
I'm here with Maria Sanchis, Global Head of Construction
Broking.
0:28
And today the two of us really want to walk through our Q3 global
marketplace insights for construction.
0:37
Maria, I've looked at a lot of the material.
0:39
I've talked to a lot of markets.
0:41
I'm getting a general sense that trends are positive around the
world.
0:47
What's been your observation on that?
0:49
I definitely agree Bill.
0:50
After five years of hard market we are really seeing around the
world that rate increases are definitely easing and we are seeing
signs of stabilization.
1:02
You know I see that there are areas that are still
problematic.
There are definitely challenging areas.
1:12
We are seeing still increases and foresee increases in wood frame
projects definitely in Nat-cat exposed areas but not only wind also
wildfire and flood and especially after a very eventful year of
catastrophic events already in 2023.
1:32
And then we're seeing also pockets in certain areas like for
example auto in the US EU and PI especially not so much in the on
the annual program. What's PI? Professional liability, more on
the professional liability not so much in the annual renewable
projects and programs but on the one off.
1:52
So project specific professional liability.
1:56
We are seeing still some just lack of appetite from the market
especially on the excess layers, right.
2:04
You know you bring up a point that around you talked about the
impact of catastrophic losses or catastrophic events in 22.
2:16
We had a number of hurricanes at the end of 22 that impacted the
reinsurance treaties that ultimately impacted the market.
2:25
What's your take?
2:26
Do you anticipate seeing some of that coming up?
2:29
We're seeing definitely similarities obviously now it's
really we'll see some for those treaties and with all the
catastrophic weekends that we've seen already, we foresee
similar, maybe not as high in terms of increases, but definitely
very sluggish appetite from the markets and really many insurers
taking a portfolio view and reserving even that capacity for group
clients as it's very limited.
2:57
And when you explain that a little bit, when you say reserving the
capacity for group clients, what does that mean?
3:02
So markets, I think that the trend as well this year and for many
regions from their feedback is that they really are taking a
portfolio view and really we're reserving their capacity for
those clients that are within the group and actually can offer
capacity and many various lines of business and within various
regions as well.
3:26
So when you say within the group you're saying that markets
that are writing contractors annual programs? Correct, they will
favor the one off projects for example, they will favor you know
their GL programs, you know in Europe, you know they will favor the
construction all risk if they write their decennial program.
3:45
So they are really taking that portfolio view of their clients and
they're really choosing them also for their reputation, and
creating those long lasting robust kind of relationships and
that's really where the Nat-Cat capacity is really being
reserved.
4:01
I know you have a global perspective.
4:05
As you look at the different geographies around the world, are
there any that are maybe seeing more of that impact than others or
is it across the board?
4:15
I would say across the board, but definitely US obviously where the
values are so high in terms of insurable values, obviously Florida,
Caribbean, Gulf of Mexico, but also obviously Canada with the
wildfires and we've seen so many catastrophic losses in that
space.
4:34
You know, we are also seeing you know, earthquakes in Turkey, you
know, exposed earthquake area.
4:38
So I would say obviously where there's insurable assets, you
know, that's going to have the biggest impact and that would
definitely be around the US. You hit another point just there, you
mentioned general liability and that makes me think of excess
liability programs.
4:55
The excess liability programs have been problematic for a lot of
contractors around the world.
5:01
What's your take on that right now?
5:04
I think that now at the pricing point where we're at, we are
seeing some re-entering capacity mainly markets that write the
primary are really seeing a little bit more appetite in getting
into that excess layer space.
5:20
So we are seeing a little bit more not only appetite by willingness
to really enter those programs.
5:27
So I think it's good news for our contractors in that
respect.
5:29
Good.
5:30
How about the mega projects, I think you know used to be a big
project was $100 million.
5:37
Now we're seeing projects in the 10s of billions.
5:40
How's that impacted impacting the marketplace and how does it
impact how a broker and their client puts together a program?
5:50
It is a challenge, but you know we are getting used to it.
5:53
We've seen mega projects this year, especially in the
technology space, but even projects that you know were very
traditional even five years ago have doubled in terms of a
replacement cost and values.
6:06
So this is an ongoing problem not only for, for mega projects.
6:09
I think that the strategy in terms of how to access that capacity
is quite important from the really early stage and realizing that
there's going to be obviously elements of loss limits that will
be imposed in those projects as getting to full value you know when
projects reach over 4 or $5 billion, you know it is a challenge and
recognizing that from the beginning and really getting to a price
point where we can get credible lead lines.
6:36
And then in a way really look at the whole marketplace as a whole
and use the local market, regional market and then reinsurance
whether it's in London and or other parts of the world to
really compete.
6:49
So it's really looking at the capacity globally and access it
in the right way to get the best results.
6:55
We always try and think through. There's always a lot of
information.
7:00
Everybody puts out information, we're putting out information
right now, but what would you take out of the information we're
looking at the marketplace we're in?
7:09
What are some actionable insights you could tell a client right now
that we should do or a broker partner to really get into the market
and get the best program for that client?
7:20
Are there actions they could do around some of these things?
7:22
I think so.
7:23
I think it's from the development phase of the program and for
the project as well.
7:28
And also when they are in terms of negotiating the contracts among
the parties, I think risk allocation is quite important.
7:37
Insurers look at the risk allocation and the contracts not only the
insurance obligations but how the risk are actually allocated among
the parties.
7:45
And they do expect that you know each party that can mitigate and
handle the risk the best should have that risk allocated to
them.
7:53
So I think that that's quite important that is being looked at
you know in a more detailed way by the insurance market.
8:01
And so would that be certain that we're presenting that with
transparency.
8:07
I think transparency is quite important.
8:09
I think now after COVID face to face negotiations, I think
especially on the large and complex are quite important to have
that proximity and familiarity with the risk that we spoke about
and also creating those robust relationships that are long term.
And to talk through the risk programs and what's being done.
Correct.
8:28
So it's not data dumping which a lot of time these mega
projects and I would say some brokers and some markets complain
about the influx of information.
8:39
We really need to as brokers chew that information and present it
in the best way possible to the market.
8:46
We're very into data, looking at things differently and trying
to help the markets with their evaluation.
8:54
Are there risk and analytic technologies?
8:58
We are using risk analytics not only in one of projects, but also
on portfolio views for some of our major clients in terms of their
assets.
9:07
And also actually, we're looking at vulnerability depending on
the face of the project, which is quite important.
9:12
We divide it into 5 phases and obviously you know between phase two
and three before the projects watertight and before a lot of the
electrical, mechanical and Fire Protection safeties are put in
places when projects are more vulnerable, not sometimes so much as
we think at the end of the project when the values are more
exposed.
9:30
So we really are looking at very analytical way on those limits and
actually sharing that information and being very transparent with
the markets as well.
9:41
So we kind of share their views on possible maximal loss to our
analytical view of how we see it to get that price point in terms
of limit. And would we run models on a specific project and say
here's when it would be exposed to? We can do that. Obviously
most projects are multi year.
10:02
We have a lot of experience doing that in high exposed Nat-Cay
areas obviously where the seasonality is quite important.
10:11
So we do take obviously some of these are faced handover, so we do
need to take very precise valuation of the values and how
they're exposed through the seasons.
10:20
Because what we're trying to do is explain to the markets they
may have less of a risk even though they may think it's a
three-year project, they may be only hitting two hurricane seasons
or something to that effect.
10:31
And because we know that in certain areas they have accumulations
that helps them also and how they manage their accumulations in an
area.
10:41
Sometimes a project might not be completed, but the exposure might
change through the facing of the project as well.
10:49
Maria, thanks.
10:49
Thanks for joining me today.
10:50
Thanks for presenting some really good insights into the
marketplace today.
10:55
It's been my pleasure.
10:56
Thank you.
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