Construction insurance’s “million-dollar question” | Insurance Business America

Insurance Business recently caught up with Shantelle Cabir (pictured), senior vice president and business insurance broker at California-based Newfront, to chat about the hurdles the sector faces and the outlook for construction insurance.

IB: What do you think is the biggest challenge facing brokers in the construction space at the moment?

Shantelle Cabir: I think the biggest challenges that we’re seeing, at least from brokers dealing with specifically construction … is the increasing cost of property and auto insurance. We continue to see that be an uptick in the market. And that does tend to continue to show as a hard market for a lot of our clients. And so that’s definitely an area where they’re seeing increases in pricing. And we’re having to kind of navigate that and find the right solutions and get creative with what we can actually offer. So it’s definitely [important] having a broker that has a wide reach, a deep bench, that’s able to really think creatively on how to structure programs.

IB: That makes sense. No matter what business you’re in, you’ve probably got to drive somewhere and you need to have a roof over your head.

Cabir: Yeah. And definitely on the commercial side, it’s a huge effect. But even on the personal side, I think that people see it too. Like, you have no claims, you have no accidents, you have no nothing – and you still are seeing an increase in your rates. And that is specifically affecting the California market heavily. … Unfortunately, with the way that legislature is set up and the way that things are going, it’s increasingly becoming an issue in that area.

For construction, specifically, we’re seeing that builders’ risk is continuing to be a limited market. So there are some carriers that have completely pulled out… So for smaller subcontractors or smaller general contractors, it’s much harder for them to be able to get those builders’ risk policies in place – and make sure that it stays affordable, especially when those costs are being passed off to them.

IB: Is builders’ risk facing issues in California for similar reasons as property insurance – because of climate-related risks, wildfires, things like that?

Cabir: No, I would say builders’ risk is a little bit different. I think that it’s just that they want to make sure they can stay profitable. And when they’re taking on smaller projects, it’s harder to get enough meat on the bone for them to stay profitable. I mean, it does have some correlation to the property market, of course, but I think a lot more of it is just the kinds of claims that they’re experiencing, and they’re seeing, especially with  the homeless situation that we’re dealing with in certain areas, and the kind of new risks and exposures that we’ve all been exposed to in the last couple of years especially. It’s really changed the market and what they’re looking at – especially for frame contractors, the ones that are actually working with frame construction. That also tends to be a factor because of the climate and how easy it is for wildfires to start.

So, there are a lot of different factors that are going into it, but I think that until California’s legislature changes a little bit to help these insurance companies to get enough rate for them to stay into the market, we’re gonna continue to see these kinds of trends where insurance carriers are leaving the market and they’re looking to find other states where they can be more profitable.

IB: That brings up a good question: there’s got to be a balance between insurers being able to turn a profit and the people that are insured and being able to afford the insurance. How do you find that balance?

Cabir: I mean, that’s, that’s the million-dollar question. I think right now that’s a very difficult situation … and I think that it really, again, comes down to the way that the legislature is set up. We have to really make some serious changes in that area for us to see a turn there – because unfortunately, if not, insurance companies are going to continue to take the stand of just leaving California. And that’s going to leave even less options in the marketplace for people who are trying to purchase their insurance.

IB: What lines do you see thriving in 2024, and is construction going to be one of them? Or is that still going to face some challenges that might keep it subdued?

Cabir: There’s different areas of construction, right? I think if you’re in the industrial space, you’re definitely continuing to see things going in the right direction. If you’re in the commercial space, things are very, very limited right now, just because … especially with what’s going on with interest rates right now, it’s much harder to get capital. And so we’re seeing that a lot of projects are being delayed. It’s also an election year, unfortunately. So we’re also seeing that a lot of people are kind of waiting on the sidelines to see how things go this year, what kind of political changes are going to be made. And I think a lot of people are just kind of hoping to just make it to 2025 to see how things go in that direction.

But … regardless of who really ends up winning elections, or becomes president, if you’re a good company, you’re never going to fall down overnight. … I think that at the end of the day, the businesses that have set themselves up well have left enough cashflow to put themselves in a good position to be able to have savings through this year. Maybe they won’t be as profitable, but they’ll at least be in a sector where they’ll be able to make it through the year.

IB: What are some priorities you’d like to see the brokerage space or the construction insurance sector focus on right now?

Cabir: So, I do want to see a lot more priority towards risk management. I think that people have kind of a loose-ended description of what that really means, and I think that a lot of people look at risk management as just checking the box in order to be able to get on a job or meet compliance.

But I think the reality is that risk management needs to be something that’s built within the organization and culture in order for there to be success. If people feel from topline management to the bottom line workers – everybody – is invested in this and keeping safety and risk management top of mind, there is a greater chance for there to be a lot more success within the organization. I think that with construction, it’s a difficult area to build that in sometimes because you’re not always dealing with the same types of employees. Especially as you grow and you become a bigger organization, you might have a lot more turnover. There might be less ability for control, but that really tells you that you need to double down and find a way to be able to work with a team that’s going to be able to consult with you.

IB: So you think brokers should proactively work with the organizations that they serve to make sure their risk management strategies are sound?

Cabir: As a company, you should be working with a brokerage that believes in the structure of investing in risk management within the organization. I see a lot of brokerages that use third-party vendors for their risk management, and that’s fine. That’s, you know, checking the box like we said, but I think that those folks are not going to be as fully invested.

At Newfront we have dedicated, on-site risk managers that are certified safety professionals. And they are fully dedicated to working with the claims team, working with the broker, working on all ends to make sure that the client is not only represented well, but they’re able to have a structure in their organization that they can follow to go in the right direction. Because, you know, as a company, you’re  trying your best – but for construction, you really only know what you know, and until you have somebody there who’s really you know, down in the dishes with you and going through the whole process … you’re really not going to get the right service.

Have something to say about this story? Let us know in the comments below.