US insurers expecting boost

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Optio Group Announcements

US insurers expecting boost

As the $1.2trn Infrastructure Investment and Jobs Act heads for a scheduled vote in the US House of Representatives, the commercial insurance market is anticipating a widespread impact that could boost business in a number of segments if the bill becomes law.

That could mean a well-capitalised market set to write new business that could come from construction projects that will rebuild America’s roads and bridges, improve schools, medical facilities and other structures, sources say. And, they pointed out, the benefits are likely to reach well beyond the construction insurance market, with a ripple effect of new business heading to insurers in other lines.

The act provides for $550bn of new investment in roads and bridges, public transit, high-speed internet, electric vehicle infrastructure, climate resilience and other areas.

The bill passed the US Senate on 10 August and is scheduled for a vote in the House of Representatives on 30 September, needing approval from both chambers before reaching President Joe Biden’s desk. It has faced resistance, with an earlier voted delayed as some Democrats threatened to derail it if a separate $3.5trn bill to expand social safety nets and combat climate change is not also assured of passage.

Plenty of capacity
Insurers are in good shape to take on new business, said John Andre, managing director at AM Best Co. “One of the major tailwinds for the commercial sector has been a very strong capital position coming into this year,” he said, and insurers are eager to deploy it.

It is likely that there is ample capacity to absorb additional demand created by the legislation, agreed Jett Abramson, executive vice-president and construction practice leader at Amwins Group. “However, that capacity won’t come without a cost,” he said. “We can expect rates to rise as demand for coverage grows.”

A significant ramping up of construction and hiring doesn’t come without concerns, sources noted. Some insurers may find they need additional experienced underwriters, which could be hard to find at a time when the industry has seen many retire or move to other occupations.

“There will be enough capacity but the question is: will there be enough underwriters to go around?” asked Todd Germano, managing director North America for managing general agency Optio Group. “There is an issue around the availability of qualified underwriters.”

“This is a major sticking point in the industry right now,” said Mr Abramson. “Talent will need to be trained and supported on the underwriting side over the next several years, rather than poached from competitors. Now would be a great time for insurers to invest in their own underwriters, to grow their skills and build out their offerings.”

New players have entered the construction insurance market and it is likely they will use some of their capacity to provide coverage for infrastructure projects, Mr Germano said. Because some of the projects will be large and complex, there will be demand for experienced underwriting talent in a tight hiring market, he added.

Just in time, for some

For at least one insurance segment, a construction boom would be particularly well received.

“The surety writers, since the 2008 financial crisis, have been champing at the bit for this infrastructure spending,” said Jennifer Marshall, director at Best. More than just money for roads and bridges, the bill provides for “a whole range of construction projects, some of which you might not immediately think of as infrastructure”, such as schools and medical facilities, she said.

Best said earlier this year in a segment outlook that the surety business is particularly vulnerable to the economic fallout from the Covid-19 pandemic, which could lead to losses with regard to the payment of performance bond claims. “Over the long term, a comprehensive infrastructure spending bill would bolster infrastructure projects and result in more business opportunities for the surety companies,” Best noted.

The Surety and Fidelity Association of America is touting the infrastructure investment as a boon for the US economy. The group said in a statement that if the bill becomes law, thousands of projects will employ millions of Americans to help rebuild infrastructure by doing work that is decades overdue.

Construction insurers won’t be the only underwriters benefiting from the infrastructure investment, sources say. Businesses that occupy new buildings will need employees who require workers compensation insurance, new general liability exposures will arise and there could be an increased demand for medical liability insurance as new medical facilities open or expand, they noted.

“There’s a domino effect you’ll see down the line from this,” said Mr Andre. “The immediate effect will be from the construction,” he explained, with further insurance demand coming later as new facilities are filled with businesses and their employees.

Builders eye benefits, challenges
Contractors are also enthusiastic about potential new business the legislation could create.

“There’s a lot we like in this bill,” said Alex Etchen, senior director, government affairs – infrastructure advancement at The Associated General Contractors of America. He referred to the five years of funding dedicated to highways, roads, bridges and transit systems as a portion of the act that is particularly pleasing to contractors because it allows them time to plan for large projects.

“We’re also excited about the reforms to environmental review and permitting process,” Mr Etchen said, explaining that it will cut down on the time it takes to secure the go-ahead on construction projects. “There’s also a $50bn investment in our nation’s water infrastructure,” he added, along with $17bn for courts, $25bn targeted to improve airports and $65bn to expand broadband internet access.

Like insurers, contractors are finding it difficult to hire workers and the demand for labour to take on new projects could make that dilemma worse, sources confirmed. A workforce survey by The Associated General Contractors of America and Autodesk found that 72% of the 2,136 individuals at firms polled said job applicants are not qualified because of lack of skills, failed drug tests and other reasons. And 58% of respondents said generous unemployment insurance supplements put in place during the pandemic have kept workers away.

There should be an ample supply of general contractors to meet demand, according to Mr Abramson, but subcontractors will likely have trouble finding enough skilled trade workers. The existing labour shortage “is impacting construction projects and creating additional issues for worksites and insurers that do not look to be letting up”, he said.

A tight construction labour market has led to rising subcontractor default insurance claims, as subcontractors have been unable to meet their obligations because of a lack of workers, according to Mr Germano.

Insurers will eye risks closely
As the pace of new construction picks up, insurers will want assurances that workers are well trained, worksite standards are not slipping and the risk profile of projects is well understood, Mr Germano confirmed. “Clearly, the better insurers will know to dig into those issues,” he said.

There is a limit, however, to how much insurers can do to “guarantee the prudent performance of each of your general contractors or construction managers”, Mr. Germano said. “You’re relying on them to do the right thing, hire the right people and ensure that they have the right amount of labour on a job.”

“The better contractors are going to get better terms from the insurance industry because they have a way to demonstrate their ability to perform in difficult circumstances,” he said. “If you can’t demonstrate that to an underwriter, it’s going to make your placement of insurance much more difficult.”


This article was originally published by Commercial Risk on 28.09.2021. See original post here.