Construction insurance specialists at Lloyd’s of London are hoping to see more U.S. business from increased government investment in infrastructure projects in 2021.
That will be welcome after a period of dealing with requests to step in on U.S. construction projects delayed due to the pandemic-related supply chain and labor issues and absorbing losses from catastrophes, fires and water damage.
Lloyd’s underwriters with experience handling construction projects from the U.S shared their insights during a “Tuesdays with Lloyd’s” virtual webinar in December. They talked of the claims and challenges they themselves have had with U.S. construction accounts as a way of letting brokers coming to Lloyd’s know how exposures will be scrutinized as well as what expertise they offer on U.S. exposures.
Even where the exposures are difficult such as with catastrophes or wood timber frame construction, or uncertain as with construction projects deploying new technologies, the panelists stressed that Lloyd’s tends to see a lot of everything and thus is in position to consider risks others may shun.
They hammered home one overriding piece of advice, however: brokers with U.S. accounts should be prepared to be open and transparent and supply more information than they might for domestic carrier underwriters, especially when it comes to accounts with any unusual traits or exposures that have produced losses in recent past.
The panelists were Raj Brar, a senior construction underwriter at AXIS Capital; John Shaw, a construction and engineering underwriter and at Canopius; and Anna Woolley, also a senior underwriter at AXIS Capital concentrating on the energy sectors. Stephen Tilley, director of property and construction at Newman Pearson & Partners brokerage in London, served as moderator.
Clients and brokers who “engage early with specialist underwriters” and help them understand their approach to risk management will see preferential treatment through the underwriting market. “Because the underwriters understand what good looks like versus what the standard is,” Shaw stressed.
“We want information. We want to delve into the project presented to us. I think by presenting a far more open book, we are able to see how you differentiate yourself from your neighbor, and ultimately, that’s going to result in additional offering coming forward,” he offered.
Catastrophe exposure is frequently a factor with U.S. construction accounts and an example of something Lloyd’s underwriters handle almost every day, according to panelists.
“Ultimately, when you’re talking about construction, it’s not just about price; it’s about the level of coverage that is being offered,” Shaw said. “There’s need for certain levels of coverage and within the Lloyd’s environment, we’re able to tailor that far more easily than you can from a large domestic or any other carrier that is specialized.”
The past year has brought about a rash of projects subject to interruption or cancelation due to the pandemic.
Woolley said her team has been kept busy by projects seeking extensions due to COVID, supply chain and labor matters. Also, with a reduction in capacity and markets withdrawing, her team has been asked to join midterm on risks that it was not on previously.
“We’ve got delays in construction projects which is combined with withdrawal of capacity from the construction market. It’s been a challenge, I think over the last 18 months, and we’re seeing a correctional shift in the market in terms of terms and conditions, pricing,” Woolley said. “So we’ve got that going on parallel to everything we’ve got going on with COVID.”
Tillie sees the midterm issue cited by Woolley as a challenge because construction is typically a non-renewing business.
“Nobody really expects to have that issue but projects do get delayed, and we’re in exceptional circumstances right now,” he agreed, adding that the underwriter has to play catch up.
“I think it’s almost that customers and brokers have to be prepared to represent as if it were a brand new project, and not that the underwriter hasn’t had the benefit of learning about the project from the start,” Tillie added.
Despite the trend of project delays, Woolley’s not complaining.
“We’re still seeing a good flow of business from the U.S. There’re still projects going ahead, and they’re still coming to London. We’re seeing a bit of a delay in the time between when we quote it, and when we initially see it to financial closing. I think that’s expected with what’s going on.”
The prospect of infrastructure spending, while also welcome, is not new.
Shaw said U.S. infrastructure projects coming into Lloyd’s have been increasing over the past decade and the talk coming out of the recent U.S. presidential election bodes well for more. Some proposals call for the U.S. to commit to the $2 trillion spending figure that the American Society of Civil Engineers estimated in 2016 was needed.
“All of this feeds into Lloyd fairly deeply,” Shaw said. “Ultimately, this has been said before, from all presidential candidates and past presidents but with every presidential term that goes by, that need to rectify the issues for the infrastructure within the U.S. become far more prevalent.”
For Shaw, capacity may become an issue that provides Lloyd’s the opportunity to help.
“We’re probably at a tipping point now where that spending needs to occur and that’s what we’re here for,” he said, adding that “when it comes, it’s going to come thick and fast and I think people will start to struggle in terms of capacity. We will soon be able to step into the bridge.”
Beyond catastrophe-prone and infrastructure-primed accounts, construction specialists in London have several other exposures they expect to see with U.S. submissions.
Fires are one.
Brar of Axis, who works in the delegated underwriting space, identified residential project fires as a major issue in 2020 in the construction line. He knows of 30 fires, all topping $1million and at least half of them topping $10 million. Some were linked to the summer’s civil unrest. He called fire risk “something that should be in the forefront of any underwriter’s thoughts.”
Even more than fires, water damage is on the underwriters’ minds as well. Brar called water damage “the silent killer” that has been building up over the years and costing millions of dollars a year in damage to infrastructure and buildings.
Shaw agreed and added that water damage claims are expected to continue.
“It’s really starting to deliver some major, major losses within the commercial and residential sector,” he said. “At the moment, there has been no consensus across industry groups coming together to really reach some agreement or best course of action. While I anticipate that it will come to the fore and will be resolved in the next few years, at the moment, from an underwriting perspective, we’re left with continued increase in losses.”
He noted that water damage losses increase along with the height of a building. “Obviously, within the U.S. in particular, there is a desire to go high in terms of your buildings, and really that has a huge impact on underwriting results,” he said.
One market that is definitely difficult is wood frame.
“In terms of timber frame, the market has been burnt, excuse the pun, but there’s been substantial losses and capacity has been withdrawn,” Woolley commented. “It’s something we consider, but it’s got to be the right contractor; it’s got to be the right project.
Where Woolley thinks the U.S. shines and Lloyd’s can help is with new engineering projects that are a “bit out of the normal” where a generalist insurer might shy away but Lloyd’s could add value.
“The U.S. is quite often at the forefront of technology advances. So we’re seeing a lot of interesting projects coming out of that, especially on the greener side. So green hydrogen production and burning of that in turbines,” she cited as examples.
One other thing for brokers coming to Lloyd’s to consider is that because it is a global marketplace, events outside the U.S. can also have an effect on U.S. accounts.
“The fact is that we have billion dollar losses elsewhere in the world, and ultimately, that’s going to trickle down into the domestic market,” Shaw noted. “The fact that a dam collapses in June in Latin America is still fundamentally going to impact a full wall construction in Idaho. That’s just the nature of the market.”
*This story ran previously in our sister publication Insurance Journal.