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Emerging Construction Risks 2013

Emerging Construction Risks 2013. Markets, Methods, Globalization and Insurance Implications. September 11, 2013. “Those who do not learn from history are doomed to repeat it ” George Santayana. A Quick History Lesson-What Was Happening In 2003 vs. Today?.

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Emerging Construction Risks 2013

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  1. Emerging Construction Risks 2013 Markets, Methods, Globalization and Insurance Implications September 11, 2013

  2. “Those who do not learn from history are doomed to repeat it” • George Santayana

  3. A Quick History Lesson-What Was Happening In 2003 vs. Today?

  4. A Quick History Lesson-What Was Happening In 2003 vs. Today?

  5. A Quick History Lesson-What Was Happening In 2003 vs. Today?

  6. A Quick History Lesson-What Was Happening In 2003 vs. Today?

  7. A Quick History Lesson-What Was Happening In 2003 vs. Today?

  8. Other Trends Have Emerged • Indemnity statutes continue to change • California, Texas, Colorado, Minnesota, Louisiana as examples • Sub contracts need to be revisited • In addition there is an increase in awareness of the lack of coverage certainty from all tiers and at all points through the statute of repose • What exactly is an occurrence for the sake of insurance? • Business risk and uncertainty of coverage • Growth of Privatization (PPP, PFI) blurring risk lines • Its also increasing global interest in the US market

  9. Other Trends Have Emerged • Alternative delivery approaches (for ex, IPD) creating need for new product approaches • Mega jobs driving partnerships (JV’s, Concessions, Design Build relationships) which require job specific risk treatments

  10. And The Insurance Industry Is Adapting….Gradually • Job placements driven by specialty markets • New risks are often embraced first by new capacity or more nimble carriers • As more of this business is placed, traditional carriers expand appetites • Professional Protective Indemnity • Contractors Pollution • GL only CIP’s • IPD professional placements • SDI

  11. Beyond Project Insurance The Market Is Stable and Competitive With A Few Big Exceptions • Capacity is significant and continues to grow • Umbrella/Excess limits can be built over $ 1 Billion on specific risks • Domestic capacity for lines such as Professional and Pollution well over $150 Million with much more available in London • Builder’s Risk limits including CAT coverage areas has ample capacity

  12. Coverage is a bit trickier • Significant differences carrier by carrier • Coverage alignment with contracts in focus • As contracts become more precise this will be even more important • Best practice in most cases is to use straight excess policies to increase GL limits to avoid re negotiating T’s and C’s in the higher limits • Residential is having a major impact on appetites • Most carriers putting limits on type and amount of residential work they will allow

  13. We Expect Rate Flattening Over The Next Year • New markets entering in all major lines now • The growth of alternative capital (Cat bonds, banking arrangements, higher retentions) will reduce demand in some cases for traditional insurance • Lack of catastrophic activity …all feeding conditions for competition

  14. Market Beyond 2013 • Rates should be stable next 24 months • Claims aggressiveness by carriers will continue as they try to manage key risks • While US based capacity is substantial use of global market strategies will increase • Global construction firms who come to the US often bring existing relationships with insurers who typically are not as active in the US

  15. Traditional Design/Bid Build Design/Build IPD PPP/PFI Integrated financing/design/build and operational model Next generation collaborative building model Traditional and still predominant method 35% of GC work put in place has elements of D/B Traditional risk allocations/ indemnities Professional Risks Flow toward team and contractor Risks change as parties blur traditional risk lines Financing, construction and operational risk co joined As Delivery Methods evolve… And Risk Profiles change…

  16. Traditional Design/Bid Build Design/Build IPD PPP/PFI • Industry comfortable with hazard risks and traditional flow down • Many markets doing both contractors as well as project based covers • Fits into traditional risk financing silos • Industry able to respond i.e. CPPI/OPPI created • Insurers (and sureties) comfortable with this approach • Coordination of General Liability and Professional Insurance Key • Mutual indemnity waivers create need for new approach to professional risk. • No standard approach stretches ability to provide single approach • Silo insurance approach does not respond well to this model • Industry need to support operational as well as construction risks • Limited marketplace with most carriers not fully understanding risk allocations • International markets more comfortable with risks. Marketplace is global for insurance. The Risk Industry Must Adapt….

  17. What’s Next For Construction Risk? • Owners, contractors, designers will have to be better aligned than they have been historically • The economics of the business will demand collaboration, innovation, and reduction of uncertainty • As a result the “risk industry” will need to reexamine what we do • We will need to do more on the broad based risks of construction • Conversation is moving beyond hazard risks • We must create broader risk tools-the questions will move from “what’s insurable and what’s not” to “what will negatively impact the outcome of this job and what are our options”

  18. What’s Next For Construction Risk? • Insurance products will need to continue to evolve • Construction risks aren’t defined by silos and the insurance industry must find a way to embrace the risks and find solutions • This will demand different thinking, better tools to evaluate risk and harnessing technology • In short….. …We will need to make the data we have important, relational and actionable

  19. 10 Years From Now…. • Insurance products and approaches will need to be re thought to meet the needs of the construction business

  20. 10 Years From Now…. • Insurance products and approaches will need to be re thought to meet the needs of the construction business • Traditional risk allocation and risk shifting will continue to evolve to more collaborative approaches to reduce costs

  21. 10 Years From Now…. • Insurance products and approaches will need to be re thought to meet the needs of the construction business • Traditional risk allocation and risk shifting will continue to evolve to more collaborative approaches to reduce costs • Silo product approaches, while predictable from a data standpoint, will need to be brought together to truly address the risks of construction and contracts

  22. Next Generation Insurance Structure Traditional Insurance Approach Workers Comp Statutory Benefits Excess Liability Excess Liability Workers Comp Statutory Benefits Builder’s Risk Excess Liability Excess Liability Excess Liability Excess Liability Pollution/ Prof Auto Liability General Liability Auto Liability General Liability Builder’s Risk Pollution/ Prof

  23. 10 Years From Now…. • Insurance products and approaches will need to be re thought to meet the needs of the construction business • Traditional risk allocation and risk shifting will continue to evolve to more collaborative approaches to reduce costs • Silo product approaches, while predictable from a data standpoint, will need to be brought together to truly address the risks of construction and contracts • Global construction and insurance markets will be much closer aligned as firms seek to have their trusted relationships support their business strategies

  24. 10 Years From Now…. • Insurance products and approaches will need to be re thought to meet the needs of the construction business • Traditional risk allocation and risk shifting will continue to evolve to more collaborative approaches to reduce costs • Silo product approaches, while predictable from a data standpoint, will need to be brought together to truly address the risks of construction and contracts • Global construction and insurance markets will be much closer aligned as firms seek to have their trusted relationships support their business strategies • The industry will need to do deeper analysis of why losses occur and provide construction clients, owners, financiers, designers with tools to allow better decisions and reduce risk and related costs

  25. 10 Years From Now…. • Ultimately, as the construction industry explores new methods, contracts and partners to increase efficiencies, the “risk industry” needs to adapt to be relevant. We need to rethink risk and bring more value to our clients on the more complex projects and relationships they will be engaging in.

  26. 10 Years From Now…. One must change one's tactics every ten years if one wishes to maintain one's superiority Napoleon

  27. 10 Years From Now…. To change is difficult. Not to change is fatal.

  28. Thank You! Paul Becker CPCU, ARM Willis 24 Century Blvd. Nashville, TN 37214 Tel: 615-872-3464 Email: paul.becker@willis.com

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