Rates:

• At the end of the last quarter, we anticipated that the pace of rate increases would slow even more than experienced towards the end of 2021. The first half of 2022 saw continued rate stabilisation with only a very slight upward curve on average rates for both projects and annuals. The plateauing of rates suggests that we are approaching (but have not yet reached) the tipping point in the market cycle. Nonetheless, even when the market does eventually reach this stage we are not expecting to see a rapid softening as we have in the past, partly due to the influence of insurer profitability which to some extent is still recovering from the tail of the soft-market.

• More challenging risk types, such as timber frame or projects exposed to water damage, continued to attract additional scrutiny with decisions on rating largely dependent on the quality of the risk management protocols in place. These requirements are not expected to disappear, so the development and articulation of thoroughly considered water management plans and fire risk strategies to insurers will remain paramount. 

• Annual programmes have seen steady year-on-year rating increases imposed by insurers in recent times, and H1 generally saw a continuation of this trend. That said, as competitive tension on annual business continues it is naturally anticipated that rate increases could level out as many insurers focus on growing their annual portfolios. Locking in rates under long-term agreements (LTAs) was recommended when the market started to harden, but growing competition poses the question as to whether the opposite could soon be a more strategic approach. 

Appetite:

• Market appetite in the first half of 2022 remained broad, with a significant volume of enquiries ever-present. Underwriter responses are consequently still slower than historically, so presentation of risk and robust broking has continued to prove critical in eliciting positive underwriter engagement and in turn finding the best solutions.

• Appetite in the market remains strong following the construction industry’s recognition as a key sector to drive economic recovery post COVID-19, which became evident in the growing number of enquiries in the market. However, the current economic climate and impact of inflation are starting to tell, with tender price inflation in the UK predicted to climb 8.5% on average this year. As a result, some projects starts are being halted or postponed whilst overall costs are under assessment.
• H1 has seen growing competition on annual accounts with more insurers looking to move away from over-reliance on project business and generate more consistent income streams. It is expected that this will continue to move in the same direction. 

• As the world continues to shift towards net-zero, demand for renewable energy projects promises to grow. Appetite for such risks tends to vary sector by sector, but prototypical technology remains a primary concern for insurers. Furthermore, there is also reduced appetite for projects in Nat Cat exposed locations, and this is not expected to change in the near future.

Capacity:

• Capacity in London is still strong and widely available for well-presented risks. There have been no market departures since mid to late 2021, with at least one new player entering in the first half of 2022 which is positive for market competition.

• The hardening of the market imposed reduced appetite for lead capacity with some key Insurers opting to scale back capacity and reconcile their books. The first half of 2022 has started to show glimpses of more markets willing to take up lead positions which again is positive for market competition. That said, the amount of capacity being deployed by insurers on more complex risks has generally remained more cautious. This is expected to continue following lessons learned from previous soft-market losses of which in some instances the impacts are still being felt. Nonetheless, there remains enough capacity in the market to complete the vast majority placements.

For further market information, or to discuss insurance for your construction project, get in touch.