Construction All Risks (CAR) update
Market conditions
Following a period of stabilisation, the international construction market is showing signs of increased competition, and in some sectors, the early stages of softening. Projects in highly exposed Natural Catastrophe (NatCat) locations, or those employing highly complex methods of construction, a significant volume of timber or combustibility, are still achieving underwriters’ technical rating adequacy. Compared to other speciality classes, the construction market speed of transition is modest, prompting interest from some of the non-traditional construction players to consider entering the class.
Markets remain disciplined, with the main focus being on building a sustainable construction portfolio for the long term, with the objective for many of them being to return to a level of profitability. Markets are acutely aware of the legacy of significant historical claims activity on long-term projects and the lack of profitability over previous years. There continues to be adequate appetite for major international construction risks, except for a slight lag in the deployment of available capacity for the largest mega projects as construction values continue to rise.
Large-scale NatCat events such as California wildfires, severe convective storms (SCS), tropical cyclones and flooding events continue to make global headlines and account for a large number of insured losses in the construction sector over the last 12 months. Whilst significant, enhanced underwriting tools, founded on detailed historical data and rating trends, have served to mitigate the impact on many construction portfolios. Internal water damage losses continue to contribute to a significant proportion of losses in the UK building sector, although increased focus on risk management and some amendments to policy terms and conditions have created an improving picture for underwriters.
The potential for further softening and increased competition throughout the remainder of the year is leading many markets to seek to maintain their current market share. Top-line growth expectations for many markets are fairly modest, but more are seeking to write larger participations to maintain their market position. All but the most challenging projects are completed in line with the lead insurers’ terms and conditions and, in many cases, slightly oversubscribed. International insurance procurement legislation changes in some locations are also, in some cases, creating a reduced need for capacity from the international market, further increasing competition. Some international markets are also seeking to re-establish construction underwriting expertise in regional hubs. Again, this is likely to bring increased competition for businesses entering the London market.
There continues to be movement in the underwriting talent pool across the London market as many seek to be well-positioned for a potential increased volume of business to achieve desired targets. Maintaining technical underwriting discipline and cautiously widening their underwriting appetite will be the challenge over the coming months.
There are now several new entrants to the sector, mainly in the form of MGAs or smaller ‘follow’ market capacity. Along with some new lead capacity entering the market over the coming months, again likely to stimulate further competition. We expect that other new entrants could follow throughout the remainder of the year as many seek to capitalise prior to any further softening of current market conditions.
Coverage
Coverage remains consistent, and there is continued caution from markets to deviate from their core product offerings. Underwriters are becoming more commercially aware of the increased competition and their ability to make wholesale changes to broad form policy wordings. The outcome of recent legal cases regarding design and defects coverage continues to resonate with markets and in some cases, has led to increased focus on this aspect of cover, with many markets seeking specific wording.
Rating
Rating has begun to soften for well-performing annual renewal business, with some significant savings being achieved. This is also prevalent where a cross-class offering can be achieved, or for those projects not significantly exposed to critical NatCat, or those that can demonstrate industry-leading levels of risk management. In the cases where cost savings are being achieved, this is while maintaining a broad form level of coverage and less deviation in rating from the follow market, necessitating a requirement for terms to be harmonised in the placement process.
NatCat (Earthquake/Windstorm) pricing and capacity (critical for many of our international risks) have remained static as many markets continue to manage the volatility of their portfolio. With 2024 being the warmest year on record and the likely further impact of climate change, there remains concern over extreme weather events occurring in what would have otherwise been modelled as benign locations. There is significant underwriting scrutiny surrounding flood and storm mitigation measures during the course of construction activities.
Market Concerns
As construction market capacity is also influenced by many global insurers and reinsurers by the performance of their wider property and casualty classes, along with the current speed of market softening in these areas, there remain several areas of key concern for construction underwriters:
- Claim cost escalation and supply chain friction due to changes in the global economic situation.
- Social and economic inflation is affecting project values and the adequacy of deductibles on multi-year project policies.
- A potentially volatile 2025 US Windstorm Season
- Political tensions in Eastern Europe and the Middle East
- The effects on Global Trade in light of US tariffs
- The continuation of unmodelled weather events, specifically in Europe and the Middle East
- Further evolution of modern methods of construction, hybrid schemes, and the repurposing of historic existing structures
Significant tangible profitability is yet to be fully realised by many insurers.
Summary
The construction market has now seen a strong period of stability, but significant tangible profitability is yet to be fully realised by many insurers. Increased competition driven by new capacity entering the market and the potential for more capacity to be retained by domestic markets will possibly drive further softening. A benign 2025 US windstorm season and global natural peril-related losses at least remaining within insurers’ modelled expectations will be key influencers of whether further market softening continues through the remainder of the year.
It is expected that UK risks, which are not subject to the same NatCat exposures, subject to continued focus on risk management and quality of underwriting information, cost savings can continue to be achieved on long-term annual accounts.
Casualty Construction Insurance Update
Since our last update, whilst insurers would prefer to stay on top of the mountain, the signs are that the descent has not only started but is well and truly ongoing. Whilst some insurers are facing internal pressures to enhance costs and efficiencies, the targets for new business continue to grow.
Consequently, the remarketing of annual contractors’ accounts is met with much vigour and competition. Long-term agreements are making a comeback, typically on a flat-rate basis, but we are seeing these offered with pre-agreed discounts for well-performing risks and as a way for insurers to compete to win new accounts. Insurers are keen to secure risks for as long as possible, particularly those with an exemplary claims record. As we approach the end of the second quarter of 2025, claims cost inflation will continue to have an impact, and retention will become more important. Reinsurers are seeking to impose some new restrictions with regard to exposure to PFAS (Per- and polyfluoroalkyl substances), so collection of this data will need to be managed carefully to minimise any restrictions on cover.
For projects, rating remains buoyant, and the lack of large building and civil projects will only help to drive more competition. As mentioned previously, there is no let-up in the rate of insolvencies, so instalment premiums may become more of a concern.
In the international casualty market, new entrants and the expansion of existing teams have driven more competition in that area. Whilst the domestic markets may be more competitive in some territories, London continues to prove its worth as clients turn to the Lloyd’s of London market for consistency and longevity over domestic rivals. Caution is still advised for certain types of projects, such as high-rise residential and refurbishments, where third-party water damage claims are prevalent. Additionally, risks in territories with bushfire exposure are treated with significant caution.
Whilst some insurers are facing internal pressures to enhance costs and efficiencies, the targets for new business continue to grow.
Professional indemnity market update
Market softening and increased competition
Throughout 2024 and H1 2025, the professional indemnity (PI) market for construction-related professions has continued to soften at a pace faster than many commentators had anticipated. This softening is driven by increased capacity and a strong desire for growth among insurers, particularly for excess layers, leading to heightened competition. As a result, significant rate reductions and a loosening of coverage restrictions, particularly concerning fire safety and cladding, have been observed.
Financial performance and strategic shifts
PI insurers and the broader Lloyd’s markets reported increased profits in 2023 and 2024 due to remediation efforts over the previous 5 years. This financial stability has allowed insurers to remove some of the regulatory constraints imposed after the ‘Decile ten’ review, shifting their strategy from remediation to growth. Consequently, insurers are now focusing on premium growth and deploying more capacity on well-performing individual risks.
Impact of Grenfell tower inquiry and legislative changes
The phase two report of the Grenfell Tower inquiry, along with associated legislative changes, has been a significant development in the construction sector. The report highlighted various failings, including inadequate guidance on compliance with building regulations, negligence by involved companies, and poor material choices regarding fire safety. However, these findings were anticipated, and the introduction of the Building Safety Act 2022 has already addressed many regulatory failings. Therefore, the report is not expected to alter the current trajectory of the PI market, which is expected to continue softening.
Coverage and underwriting attitudes
While exclusions may still apply to historical projects, contractors and their supply chain can expect at least aggregate limits on a go-forward basis. The RICS minimum terms now mandate coverage for buildings of five storeys and above, effective from 1 July 2024. This change is welcome, and contractors should be challenging their supply chain parties who do not have appropriate levels of cover in this area.
Cladding and fire safety
The market has widely adopted the IUA Cladding and fire safety restricted coverage clauses. However, some firms continue to face increased levels of per-building retentions on legacy projects as insurers seek to minimise exposure to new notifications arising from the Building Safety Act 2022. Despite this, there is increased availability of cladding and fire safety cover, including extensions to the retroactive date for firms previously subject to exclusions for combustible cladding and fire safety claims. In addition, reduced forward excesses are available to firms that are able to demonstrate robust fire safety risk management. Coverage remains limited to a negligence trigger, a single aggregate limit, excludes consequential losses, and per-building excess.
Rate changes and market dynamics
The improvement in the rating environment throughout 2024 has continued apace in H1 2025, with well-performing firms securing meaningful rate reductions. Rate changes depend on several factors, including risk profile, claims activity, and the volume of cladding and fire safety-related notifications. Increased competition, especially for firms willing to take appropriate levels of self-insured retentions, has resulted in more favourable renewal outcomes.
Market concerns and financial health
Contractor and supply chain insolvency continue to be a major concern for the market. Despite the construction material price index stabilising in the last 12 months, many firms continue to experience financial strain due to thin operating margins, leading to higher insolvency levels. Recent high-profile insolvencies, such as ISG, underscore the severity of the issue.
Insurers are increasingly scrutinising firms’ financial health and liquidity, as well as their ability to manage these challenging conditions. This includes a focus on firms’ strategies for securing contractual protection against price inflation and ensuring sufficient contingency in their contracts. Insurers are also paying closer attention to firms’ proactive measures in reviewing the financial strength of their supply chain, aiming to mitigate the risks associated with contractor and supply chain insolvency.
Regulatory impact and precautionary notifications
The Building Safety Act has extended the limitation period from 6 years to 30 years under the Defective Premises Act 1972 and the Building Act 1984. Firms have expanded their past project reviews to include all relevant buildings constructed or refurbished over the last 30 years, leading to new precautionary notifications from main contractors. Insurers have adopted a more critical view of cladding and fire safety cover for projects completed prior to changes in building regulations in December 2018, requiring firms to evidence the extent of past project reviews for buildings above 5 storeys/11 metres in height.
Conclusion
The last 18 months have seen a marked improvement in market conditions compared to the previous 5 years. Insurers are now focusing on premium growth and deploying more capacity on well-performing risks, indicative of softer market conditions. However, the market remains cautious towards cladding and fire safety-related exposures, which continue to impact the construction industry. The increased competition has resulted in rate reductions of 15% on average and up to 25% for well-performing risks with year-on-year growth in turnover. Despite these improvements, the market continues to exercise caution in the policy terms and conditions in respect of Cladding & Fire Safety cover for legacy projects and the financial health of firms due to industry-wide low profit margins and supply chain challenges.
The increased competition has resulted in rate reductions of 15% on average and up to 25% for well-performing risks with year-on-year growth in turnover.
Motor Insurance Market Update
In 2024, the motor market experienced mixed conditions, with a noticeable softening as the year progressed. Following two years marked by some of the worst combined operating ratios since 2011, it became imperative for rates to align with claims expenditure. Most insurers have now rectified their losses and are eager to acquire new business, creating an exciting market environment due to the heightened interest in the risks we present.
Clients who prioritise risk management are attracting significant attention, as underwriters are keen to collaborate with companies focused on improving their claims records. Partnerships between insurers and technology providers are offering integrated solutions for fleet operators at reduced costs across many of our leading partner markets.
Enhanced data analytics capabilities are facilitating more precise underwriting and claims management. With the evolving landscape of vehicles and vehicle technology, the market must adapt to accommodate the influx of new vehicles, particularly from China. Insurers need to ensure their repair networks are prepared, have access to necessary parts, and possess the expertise to return clients’ vehicles to the road promptly.
As of February 2025, there are over 1.4 million fully electric cars in the UK, accounting for approximately 4% of the 34 million cars on UK roads. Repairs for electric vehicles can cost up to 25% more than those for internal combustion engines, prompting insurers to adjust their rates to cover these additional expenses. Clients must ensure these vehicles are operated by experienced drivers, as their immediate acceleration could lead to increased claims if handled by inexperienced individuals.
The Gallagher Fleet Safety Academy is now operational, offering assistance with regulatory compliance, customised learning paths, and ongoing support and resources, all provided free of charge as part of our commitment to ensuring company driving compliance. We anticipate that premiums for well-managed risks will only rise in line with inflation while we continue to seek insights into evolving customer expectations and how insurers can meet these demands.
Our commitment remains steadfast in delivering innovative, competitive, and comprehensive fleet insurance solutions in 2025 and beyond.
Clients who prioritise risk management are attracting significant attention, as underwriters are keen to collaborate with companies focused on improving their claims records.
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