Construction and Risk Trends 2012

Report
Lessons From The
Trenches-Construction and
Risk Trends 2012
Paul Becker CPCU, ARM
Chairman Willis Construction Practice
September 19, 2012
A Few Opening
Comments
• Welcome!
• What we focused on this year
• What are the underlying trends in the
construction industry?
• What about the insurance market?
• What’s on your mind?
• Let’s get started
1
Let’s Approach This
Differently
• This is audience participation time!
• Tell us who you are
• Tell us what’s on your mind
• Tell us what’s important
• Turning Technologies
2
Tell Us Who You Are
Your Company
Your role
Project owner
Financial
General Contractor Risk management
Sub Contractor
Safety
Supplier
Claims
Willis
Other
Carrier/Vendor
3
A Few Thoughts
• What are we seeing now?
• Underlying construction activity still muted but signs of
improvement in some sectors and geographies
• Carrier movements both in Surety and P&C: New capacity and
appetites coming on line
4
Value of Construction Put in Place Seasonally Adjusted Annual Rate
Value of Construction Put in Place - Seasonally Adjusted Annual Rate
(Millions of dollars. Details may not add to totals due to rounding.)
Percent change
Type of Construction:
5
Jul
2012
Jun
2012
May
2012
Apr
2012
Mar
2012
Jul 2012 from Jul
Jun
Jul
2011
2012
2011
Total Construction
834,384 842,224 838,778 825,133 817,842 763,468
-0.9
9.3
Residential
271,214 275,520 268,937 260,635 256,156 230,599
-1.6
17.6
Nonresidential
563,170 566,704 569,841 564,499 561,686 532,869
-0.6
5.7
US Census Bureau August 2012
Where’s The Growth Going To Come From?
6
Source: FMI Construction Outlook Second Quarter 2012 Reports
Help Us Get Better-What Are The Most
Important Things Willis Should Focus
On?
• Broad coverage
terms
• Claims Advocacy
• Safety Consulting
and Loss Prevention
• Product and Service
Innovation
7
• Lowest Price
• Day to day service
• Understanding your
business
• Helping you to identify
“over the horizon”
challenges
Tell Us What You Want To Hear-A
Top Ten Voting List
1. The changing insurance marketplace-Is it getting harder really? How long
will it last? How bad will it be?
2. Claims-What are the evolving challenges? What recent court cases keep you
up at night?
3. Changing exposures in construction-What risks will create the next coverage
issues?
4. Project specific insurance-Its grown significantly in the last decade. Where
is it heading? Is this good or bad?
5. New carriers-Why does it appear that there are so many new carriers
entering the marketplace now?
6. Evolving delivery systems and types of contracts-Are they really here to
stay? Which ones are we likely to be still talking about in 5 to 10 years?
(IPD, PPP, Alternative Energy, Equity investing by contractors)
8
Tell Us What You Want To
Hear-A Top Ten Voting List
7. The trend of mega jobs-Will this change the risk profiles of mid-sized
firms? Where will the work come from for firms which can’t compete in this
range? How is the surety market reacting?
8. Acquisitions continue to make headlines -Will this continue? Why?
Challenges to owners? Subs? Risks to contemplate?
9. What’s the latest on state specific challenges? What are the biggest
challenges you see at the state risk level?
10. Getting the best deal in the insurance marketplace-What makes a carrier look
more favorably on one firm versus another? Does marketing yourself really
have an impact on price?
9
The Top Ten
1. Changing Insurance
Market
2. Claims Evolving
Challenges
3. Changing ExposuresNew Issues?
4. Project Specific
Insurance Growth
5. New Carriers-Why
Now?
10
6. New Project Delivery
Methods-New
Exposures?
7. Mega Jobs-What
Should You Think
About?
8. Acquisitions
9. State Specific
Challenges
10. Getting The Best Deal
1. Is The Market Hardening? If
So How Long Will It Last
• Lots of talk
• Some movement is clearly out there
• Not everywhere on all accounts
• Are seeing some increases on larger accounts (5% + or -)
• Property more stressed as well as Workers Compensation
• Long term sustainability of increases not certain at all
• Unfortunately for insurance carriers, results still pretty good
• Business is viewed as stable by investors encouraging capital
infusions
• New carriers believe good time to enter
• Reinsurance pricing predicted to flatten for 1.1.2013
renewals*
11
* Fitch’s 2013 Reinsurance Review
1. Is The Market Hardening? Is
So How Long Will It Last
12
Line
Rate Movement
General Liability
+3% to +10%
Excess Liability
+5% to +12%
Workers’ Compensation
+3% to +10% (state-by-state increases could
be higher)
Builders Risk
Flat to +10%, higher in high catastrophe areas
Project Insurance (Wrap-Ups)
Primary and excess rates remain flat with
significant variation depending on job size,
type of work and location
2. Claims-What Are The Evolving
Challenges? What Recent Court Cases Keep You
Up At Nght?
• Current challenges
• Uncertainty on indemnity statutes
• NY Labor Laws
• Business Risk and what courts define as an occurrence
• Lack of consistent underwriting alignment with claims
• Aggressive coverage positions and use of outside counsels by
carriers
• Court cases that keep us up
• Kvaerner
• Gilbert
13
3. Changing Exposures In ConstructionWhat Risks Will Create The Next
Coverage Issues?
• Cyber: The intersection of technologies via the
Web
•
•
•
•
Design teaming
IPD
Beyond BIM
Employee environment
• Supply chain: Globalization driving risk
• Do you know where your materials are coming from?
• Who procures these?
• Coverage challenges
• Indirect losses/soft costs
• Time
• Contractual relief?
14
3. Changing Exposures In ConstructionWhat Risks Will Create The Next Coverage
Issues?
• Design Integration
• Impact on legal liability-When is a professional problem
a coverage challenge?
• Contract Damages
• Confusion on insurance coverage for consequential
damages versus contractually mandated damages
(liquidated damages vs consequential waivers for ex.)
• Warrantees
• Guaranteeing performance over time-ESCO contracts
for example
• Not a big market for risk transfer at present
15
4. Project Specific Insurance-Its Grown
Significantly In The Last Decade. Where Is It
Heading? Is This Good or Bad?
• Underlying driver has shifted from perceived cost savings to more
coverage certainty-that’s not a bad thing
• Market is adapting to new buying habits
• GL only-At much lower project sizes (as low as $5 to 10 MM)
• Project OPPI or CPPI programs
• Statutory term coverage
• Non traditional markets driving activity
• Challenges
• Impact on contractor programs
• Lack of consistent coverage project to project
• Limits purchased
• Poor project administration
• More demand for accountability-How did the program work? Was it a
success? How do you measure it?
16
5. New Carriers-Key National Construction
Insurance Carriers-Primary Casualty
2005
2012
AIG
ACE
Arch
CNA
Hartford
Liberty
Old Republic
Travelers
Zurich
ACE *
Arch
AWAC *
Chartis *
CNA *
Hartford *
Liberty
Old Republic
Starr *
Travelers *
XL *
Zurich *
 = new leadership since 2005
17
5. New Carriers-Professional Liability
18
2000
2006
2012
CNA
ECS
Kemper
Lexington
Zurich
Ace
CNA
ECS
Lexington
LIU
Quanta
St. Paul/Travelers
Zurich
ACE
Alterra
Arch
Aspen
Axis
Catlin
CNA
CV Starr
Lexington
LIU
Swiss Re
Travelers
XL
Zurich
5. Key National Construction Insurance
Carriers-Excess Liability
19
2005
2012
AIG/Lexington
ACE/Westchester
Lloyd’s
Travelers
Zurich
ACE/Westchester
AXIS
AWAC
Chartis
Interstate
Ironshore
Liberty International
Starr
Travelers
XL
Zurich
5. Builder’s Risk
20
2008
2012
ACE/Westchester
Allianz
Axis
Chubb
CNA
Lexington
Lloyd’s
Travelers
Zurich
ACE/Westchester
AWAC
Beazley
Chartis
CV Starr
Ironshore
Torus
Tower Group
Travelers
XL
Zurich
5. New Names In Surety
Recent activity and new players
• Lots of movement on the carrier side
•
•
•
•
•
New carriers getting in
Existing carriers trying to hold on to market share
Rate competition notable
Innovation for differentiation
Massive capacity
Delivery methods testing sureties
•
•
•
•
21
Gap
PPP
IPD?
Need for increased liquidity in the products
5. New Names In Surety
Notable movements:
•
•
•
•
•
AWAC-New carrier. Leader named August 2012
One Beacon-New carrier. Leadership from ACE
September 2012
XL-Formed November 2010
Berkeley-New President 2012
Torus is investigating entering the business
Why do markets want to get into this business now?
22
6. IPD, PPP, Alternative Energy, Equity Investing By
Contractors-Are These Really Going To Impact The
Business? Which Ones Are We Likely To Be Still
Talking About In 5 to 10 Years?
• IPD: Health care driven
• Will this migrate to general commercial construction?
• Carriers still catching up-if you’ve seen a deal for IPD you’ve
seen one deal
• Significant growth in next 10 years?
• Public Private Partnerships
• In the US is there opportunity beyond infrastructure?
Healthcare? GSA?
• Big bets that this will grow-Impact of foreign investment,
challenges from traditional financing
• Growth likely but not a panecea
23
6. IPD, PPP, Alternative Energy, Equity Investing By
Contractors-Are These Really Going To Impact The
Business? Which Ones Are We Likely To Be Still
Talking About In 5 to 10 Years?
• Alternative Energy
• What are we talking about here?
• Alternatives Solar, Wind, Bio Fuels
• Getting energy from point A to point B: Pipelines, refineries, HVT
• Underlying economic drivers suspect
• Impact of gas, shale, coal sources
• Long term growth-uncertain
• Development
• Contractor involvement-lots of discussion about sharing in equity risk
• Lender requirements forcing teams to look at different risk
structures on financial returns
24
7. The Trend Of Mega Jobs (over $500
MM)
• Dedicated sources of funds
• Ballot initiatives
• Political will-both helps (TMZ) and hurts (Hudson River Tunnels)
• PPP Model-using “off balance sheet funds”
• Shift risk to consortiums/concessionaires
• Limited pool of firms that can compete
• Helping larger firms- top 30 ENR contractors, not helping
middle market firms
25
7. The Trend Of Mega Jobs (over $500
MM)
• Pent up demand helping in some cases
• Brickell Place, Miami
• Surety is keeping pace
• Capacity on a single jobs well over $1 Billion
• Developing products to help protect liquidity in some cases
• Insurance marketplace
• Truly global especially on builder’s risk (European carriers
especially have an appetite for large infrastructure jobs)
• Job limits of $300,000,000 + for GL/Excess, $100MM plus for
CPPI, same for Environmental
• Vast majority of the mega projects are “wrapped”
26
8. Acquisitions
• Key Drivers





Geography
Financial conditions
Succession planning
Size of deals
Uncertainty about the future
• Recent Deals
‒ Wietz (Orascom)
‒ Summit (dck)
‒ Shaw (CBI)
‒ All in last two months- All ENR 400 contractors.
27
9. What’s The Latest On State Specific
Challenges?
• Types of concerns
• Statutes
• Court interpretations
• Concerns also based on who is asking
• Owner, GC, Sub Contractors
• Statutes focused on several key areas that impact construction
• Anti Indemnity Laws
• Structural work acts/Labor Laws (Such as NY 240, 241, 242)
• Subrogation limitations (such as on Worker’s Compensation)
• Court Cases
• Business risk cases (South Carolina, Pennsylvania, Florida for ex.)
• Horizontal vs. Vertical Limits exhaustion (for ex. Kajima decision in
Illinois)
28
10. Getting The Best Deal In The
Insurance Marketplace
• What makes a carrier look more favorably on one firm versus
another?
• Make it personal-Meet the underwriters face to face
• Spend time selling yourselves
• Why should the underwriter give you a better deal? How do
your losses relate to your safety and quality programs? Is
your senior management involved?
• Lay out your long term plans
• If you do surety meetings think in terms of the same approach
• Talk about contractual controls
• Are you keeping the right amount of risk via the contract or
assuming the right amount?
29
10. Getting The Best Deal In The
Insurance Marketplace
• Marketing every year typically does not work
• Its expensive to quote a new deal-underwriters anticipate they
will have a few years (3 or so) to recover these initial costs of
establishing a new relationship
• Collateral is cumulative and needs to be considered in all
deals
• Bank credit lines getting really expensive
• As work picks up bank lines may become more important to
ramp up work
• Focus on cleaning up your data
• Close as many claims as you can
• Sort the claims based on work you no longer do or in states
you aren’t going to be in
30
10. Getting The Best Deal In The
Insurance Marketplace
• Be creative
• Spend time making your company/job interesting
• Set up job tours, share the things you are proud of like newsletters,
awards (particularly safety awards), and employee retention,
recruiting and culture
• Be easy to underwrite
• Share all information, be detailed and be complete
• Certainly question why data is being requested but supply
everything you can
• Give them enough time-90 days is ideal. Also helps get them to quote
early.
• Meet with them before the full information is submitted and then once it
is
• It’s a couple of meetings but the first one sells the firm, the second
shows commitment to giving underwriters what they need
31
10. Getting The Best Deal In The
Insurance Marketplace
• Finally give the underwriter the opportunity to sell its services
• This gives you a good idea on their value added
• Also allows you to make a qualitative decision based on how the
carrier aligns with your firm
• Ultimately the best outcomes take time and focus will assure the
best long term deal!
32
Have A Great Conference
• Spend time getting to know who else is attending
• Pick everyone’s brains
• Tell us what you worry about
• Tell us what matters-not just in this session but
overall
• Have some fun!
Thank you for coming to San
Antonio!
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