Contractors Facing Rising Rates as Insurance Markets Continue to Harden

By Mary Grandy, EPIC Insurance Brokers

may hold. Tat rings truer than ever for 2021, when everyone is anxious to put 2020 as far behind in the rearview mirror as possible. Unfortunately, just like that cheap champagne from New Year’s Eve, 2021 is likely to have some lingering hangover effects that business owners need to brace themselves for. Even before the world was


left reeling by the pandemic, the insurance markets had already begun a shift towards the hardest market that many have seen in a very long time. According to Te Council for Insurance Agents and Brokers (CIAB), results for 2020 show rates continued to rise, with an 11.7% average hike across all policy lines in the third quarter. While all lines reported increases, Excess and Umbrella coverage posted the largest increase at 22.9%, coupled with a 20% increase in the second quarter, which followed a 17.3% increase in the first quarter. Although Q4 results were not yet

available as of this article, the trend has continued, and the annualized average excess and umbrella increases will be well over 60% for 2020. Even with this significant inflation, loss trends continue to outpace the rate increases that carriers are imple- menting. Tis does not bode well for 2021 rates.

‘Social Inflation’ Drives Loss Trends

A primary driver of these loss

trends is not only the significant increase in the frequency of auto claims, but also the growing number of “nuclear” verdicts that have led to social inflation. Te term “social inflation” refers to rising insurance losses

10 January/February 2021

hen a new year begins, we tend to have a renewed hope for what the coming year

resulting from higher jury verdicts, more liberal workers’ compen- sation claims, legislated compensation increases, and new tort and negli- gence interpretations. Insurers find themselves in more lawsuits where they are being hit with larger jury verdicts than ever before. Numerous other

unforeseen climate and socioeconomic events such as #MeToo, the California wildfires, and the Opioid Epidemic also further ravaged insurers. Tere is an overall mistrust of big corporations, and attorneys that fuel a mentality akin to winning the lottery. Social media fans the flames, and every incident is now captured live on cell phone video. We live in a world where determining the true facts in the news we read has become a part-time job. Investor financing for lawsuits is also big business, supporting all aforemen- tioned areas. How does all this translate towards

our friends in the construction industry? While no class of business has been immune to the increases, contractors with higher exposure scopes of work and a heavy fleet of vehicles have been feeling a significant amount of pain for the better part of a year – and they can expect that to continue for the foreseeable future.

Carriers Reducing Capacity and Risks

A “soft” market cycle for over 15

years has left many accounts actuarily underpriced for the policy coverage limits carriers were offering. To correct this variance, carriers are now signifi- cantly reducing their capacity and risks, with little adjustment to the price.

If a carrier wrote a $25

million Excess Liability limit policy, they are now offering a limit of $5 million to $10 million maximum limit, and often for a very similar price for which they offered the original $25 million limit. Te contractor then must secure another policy in their excess tower, for an additional premium.

It would not be uncommon for

a contractor who previously carried $100 million in excess liability limits tower with four carriers to now find themselves renewing with as many as eight different carriers, while facing double-digit percentage increases in premiums to get there. How can contractors mitigate

this increase? Many are looking at alternative risk placements, perhaps increasing the primary layer of insurance before the excess carrier must engage (from $1 million to $2 million) and are investigating higher deductibles or self-insured limits. All should consider revamping and updating their driver safety program and closely monitoring claim activity. New technologies such as wearables, drive cams, and teaching good old defensive driving skills can all have a positive effect on the losses sustained over the long term. 

Mary Grandy, CRIS, CCLA, is Senior Vice President, Business Insurance, at EPIC Insurance Brokers, Rancho Cordova. She specializes in the design, implementation and management of insurance and risk management solutions for clients in the construction industry. She can be reached at (916) 576-1514 or

California Constructor

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