Barometer Shows Premiums on the Decline for Contractors Market

MarketScout began tracking property and casualty pricing trends in 2001 in an effort to share the pricing results of insurance placements related to their 50,000 member agent network. The monthly market trends are published in MarketScout’s “Market Barometer.” The barometer includes all property and casualty industry groups and coverages. Within this composite data is specific data related to contractors. MarketScout has extracted information related to contractors in order to prepare an exclusive report for Insurance Journal.

On a composite basis, premiums for contractors are down 7 percent. However, that measurement can be deceptive because premium increases or decreases are significantly impacted based upon the type of contractor being analyzed.

The contracting industry is one of the toughest to monitor because of its extreme diversity. Using a composite barometer for contractors could be very misleading if comparing general contractors to “paper or residential” contractors.

The most significant premium decreases are with large commercial contractors, who pay over $500,000 in premium, employ their own workers and have no residential operations. These contractors are enjoying premium decreases of 10 percent to 15 percent.

Middle market general contractors’ premiums ($100,000 to $500,000) are down 7 percent to 10 percent. Small general contractors’ premiums (under $100,000) are being reduced and average of 5 percent.

Smaller artisan contractors are seeing premium decreases of 7 percent to 10 percent, but only if they employ their own staff and limit their use of subcontractors to 20 percent or less.

Exposures related to completed operations and other risks inherent to residential construction continue to concern underwriters. As a result, residential contractors are seeing flat renewals and are not securing any rate reductions.

“Paper contractors” (those who utilize a high percentage of subcontractors) are actually experiencing rate increases averaging 3 percent. The basic underwriting concern with paper contractors revolves around exposures that are not reflected in the reported payroll. Underwriters do not receive a commensurate amount of premium as related to the exposures reported because “paper contractors” do not report the payroll of subcontractors.

A more detailed measurement of contractors’ premium increases or decreases is as follows:

Composite of all contractors–down 7 percent; larger general contractors–down 12 percent; middle market general contractors–down 8 percent; small general contractors–down 5 percent; residential contractors–No change; and paper contractors–up 3 percent.

What’s ahead
We anticipate a general downward trend in rates for the contracting industry, over the next 12 months. The rate decreases will be measured based upon the risk profile of each account.

There are many markets focused on the contracting industry with the tougher accounts going to a vibrant excess and surplus lines market. The larger general contractor market includes AIG, Zurich, ACE and various excess and surplus lines insurers.

OCIP, CCIP and Wrap Up projects are being underwritten by AIG, Zurich, Liberty Mutual and sometimes St. Paul. Middle market accounts are underwritten by AIG, Federated, Zurich, Chubb, Mid Continent, Berkeley, Arch and CNA. Many of the middle market insurers will also write smaller accounts. Safeco is another good small market account. There are many other insurers writing contractors. The companies mentioned here are not necessarily the best or the most competitive but are indeed insurers to consider when writing contractor business.

The findings of MarketScout’s barometer are further supported by surveys conducted by The National Alliance for Education and Research. These surveys were conducted during CIC and CRM institutes held across the United States in July 2005.

Richard Kerr is the chairman and CEO of Dallas, Texas-based MarketScout, an electronic insurance exchange which underwrites and dis
tributes product lines to its 51,000-member agency network nationwide.

Property/casualty market data is compiled each month. More than 40 ‘A’ rated carriers participate in the MarketScout exchange platform at www.marketscout.com.

Topics Trends Pricing Trends Underwriting Contractors Property Casualty