Builders risk is currently a buyer’s market—but whether that continues long-term depends on unpredictable forces like U.S. economic trends and the wildfires in the West.
As competition heats up, here are three trends to keep an eye on that could have a big impact on your builders risk clients:
1) Broader coverage forms. Jeff Benson, builders risk program manager at Victor O. Schinnerer & Co., is seeing “more and more” coverage being built into builders risk forms. “It’s really bumping up against what I consider professional liability and workmanship,” he says. “And that all sounds good, but eventually carriers are going to have to address pricing if they keep building more coverage in.”
From delay and completion to soft costs, “all that stuff is built in now,” Benson says. “And I won’t call it a soft market, but that’s kind of how carriers are competing. Maybe a good way to put it is that the market has softened a little bit coverage-wise, whereas pricing is pretty stable”—at least for the time being.
It’s a trend that’s cropping up throughout the commercial marketplace: “Certainly terms and conditions broadened for builders risk, but not only builders risk,” says Alexander McGinley, senior vice president, marine, AXA XL. “The frontiers of coverage are continually pushed forward as carriers struggle for market share.”
2) Internet of Things. From devices that help prevent theft to water damage detection technology that can help mitigate one of the market’s top causes of loss, IoT technology is becoming increasingly important for builders risk insureds.
Even wearables, generally discussed more frequently in terms of their potential impact on the workers comp market, could become an important tool for builders risk insureds in the years ahead. “The increased use of wearables as a means to monitor the heartrate and activities of workers could have a direct correlation” to loss control for builders risk, McGinley says.
But how does the IoT fit into the insurance equation beyond risk management? “In the past, it’s very much been the insurance company saying, ‘We’ll change your deductible structure or give you a credit if you’re using this technology,’” says Mike Perrotti, senior vice president, AXA XL inland marine practice leader. “But as the technology gets less expensive, more companies may consider investing in supplying it to the contractors.”
“As carriers, we stand to benefit the more they adopt it—it definitely is going to affect bottom line,” McGinley agrees. “Of course, adopting it consistently is really the challenge.”
Challenges abound, it turns out. “These new technologies present a promise as well as a peril at the same time—there’s a potential for reduction of loss, but ironically, there’s also a potential for increase in loss for some things we may not have thought of before, such as cyber and virus losses,” McGinley points out, noting that a cyberattack could easily result in theft, collapse or some other kind of physical damage at a jobsite. “Although we really haven’t seen that within our portfolio, it’s just a matter of time, and I don’t know that the industry is prepared for it.”
And Tyler Van Spanje, innovation leader for marine insurance at Vindati, an InsurTech MGA focused on the marine, construction and agriculture sectors of the small to midsize commercial insurance space, points out that accessibility to the data generated by the IoT will be a hurdle in itself: “When you consider all the data that’s available now plus what’s coming from the IoT, it becomes a data problem—you have to figure out how to handle all of it.”
3) Data and predictive analytics. Whereas the IoT can help measure conditions at a jobsite and prevent future losses accordingly, the goal of data modeling and predictive analytics is to achieve faster and more accurate quoting and underwriting processes.
“A lot of those IoT solutions work for once a project is in place—not necessarily when you do your initial analysis,” Van Spanje explains. “The question is, can carriers or MGAs utilize that data to benefit the underwriting process? Compared to how we evaluate risk today and how we’ve evaluated risk in the past, we’re trying to look forward and ask, ‘What kind of information can we use in place of what we usually ask? What information is better now so we don’t need to ask those questions and require a 10-page application, because the data’s already there?’”
In that equation, the IoT is just one piece of a much larger data puzzle. For example, builders risk underwriters might use data from a wide range of third parties to evaluate the potential for theft and materials based on the location of a jobsite; flood, earthquake and crime exposures at the jobsite; whether the contractor is really up for the job; and more. “These are things underwriters can do today, but they have to pull all these reports from multiple sources,” Van Spanje points out.
The goal of an InsurTech like Vindati, Van Spanje explains, is to streamline that process by using third-party data sources “to supplement the data we receive from brokers and provide both a better customer experience and a better underwriting process that utilizes the analytics and data we obtain.”
“We really believe the current model is very much a hands-on underwritten line of business, which means it’s very subjective,” Van Spanje adds. “Through data, we can drive that into a much more objective approach so that the pricing is more consistent, terms and conditions are more consistent, eligibility is more consistent, and market options are more consistent.”
Jacquelyn Connelly is IA senior editor.