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Perspective

Is It Time to Ride the Non-Residential Construction Wave?

December 09, 2014| By Bryan Costello | General Liability | English

Region: U.S.

In an earlier post, my colleague Jim McMahon blogged about construction in North America as a growth area. As we reach the end of the 4th quarter of 2014, it seems appropriate to shine a spotlight once again on the construction industry. The big question for some insurers: Is it the right time to hop on the construction wave?

One key indicator that the time is right lies in a comparison of the construction unemployment rates over time vs. the U.S. overall unemployment rate. In the exhibit below, the U.S. job sector improved yet again in September 2014. Over the past six months, the country has produced a record setting number of new jobs since the 2008 economic collapse. In a parallel comparison, the construction industry is still showing a significant increase in the overall number of new jobs produced.

 

Source: Bureau of Labor Statistics

Over the past few years the residential construction boom has captured the attention of the press. Rightfully so, since the residential sector sparked the industry growth wave. Many in the insurance industry wondered if the non-residential sector would ever catch up. According to various construction experts and trade associations, three key indices have hit peak levels post 2008:

  • Revenue
  • Profit margins
  • Employment


These indices are not only increasing but booming in recent months. Momentum in the non-residential arena began in the winter of 2014 and has picked up speed ever since.

So, what does this mean for the insurance industry? More specifically, what can producers, insurance carriers and underwriters expect to see as 2014 winds down and 2015 begins?

For insurance carriers targeting commercial construction risks, the current marketplace appears ripe for entry. While in 2012 and 2013 this sector saw relatively flat spending in the construction arena, 2014 brought an increase in spending (5% - 6%). Forecasters now predict that increase to push up another 8% - 9% in the upcoming 2015 term. This will mean that for agents/brokers, carriers and reinsurers alike, the pool of risks will continue to expand.

For those either currently in the sector or looking to get involved, all indications point to the maxim that there is no time like the present. More so now than ever, producers are finding unique solutions to fit their construction clients’ needs. Whether it be capped rolling-wrap up policies, larger underlying retentions, or umbrella policies atop both practice and specific project limits, the marketplace is finding ways to support this non-residential construction demand.

 

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