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Commentary: Riding the rate waves

By Tim Cleary

The tumultuous construction and real estate markets of late may soon affect companies’ insurance rates – a phenomenon that’s already apparent in some sectors.

Many foresee the property and casualty insurance markets entering a hardening cycle, which is a time when rates plateau or increase. Though that cycle hasn’t yet hit the industry across the board, some companies are noting increases in select situations.

There also is concern about the potential for an “invisible hard market,” which is when a company’s exposure basis – such as payroll – drops and though total premiums are reduced year-over-year, a rate class increase occurs.

Some analysts predict the overall tightening of the commercial property and casualty insurance markets will make it more difficult for companies to obtain the coverage they want and need.

Before these market changes affect a larger percentage of the construction industry, there are things companies should consider to plan ahead:

Continue to review and consider contractual agreements before signing. There will continue to be shifts in the type of insurance requirements, as well as indemnification provisions that can affect applicability and availability of the correct coverage.

Work with a team of knowledgeable advisors to cover everything from insurance to legal needs. Working with specialized advisors often is more efficient and leaves companies better protected.

It is critical to work with internal and external providers for safety and risk-management services. There are a variety of factors that can influence contractor insurance pricing, and a reduction of covered losses always will have a significant effect on the total costs.

Don’t forget about effective marketing. The degree to which a company’s insurance program has been marketed to insurance companies and the manner in which it is marketed can have a significant effect on costs.

Proactive strategies contractors can use to help control any potential shift in the marketplace include:

Change focus from bidding insurance providers to concentrating on reducing losses. Companies that focus on procedural improvements, routine maintenance, inspections and investigation will see positive results financially and culturally.

Keep active with weekly toolbox talks, mock audits, safety committees and external reinforcement from advisory partners.

Stay on top of claims management procedures and remain engaged with insurance carriers, brokers or agencies. Involve them in talks about ongoing and potential claim scenarios.

There always will be change in the construction and insurance markets, and the degree to which contractors and developers can sustain and prosper during these shifts has a significant effect on their bottom line.

Companies will be better prepared for these changes if they foster good relationships with specialized staff members and external advisors who can help control the fallout wherever and whenever it occurs.
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Tim Cleary leads the Construction and Real Estate Practice Group at Madison-based M3 Insurance Solutions Inc. Cleary is a member of the Associated General Contractors of Wisconsin Inc., Associated Builders & Contractors of Wisconsin Inc. and many other trade and industry groups.


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