Cheaper Renewals Do Not Remove the Cost Pressure in Construction Claims

The tension matters for builders, contractors, developers and project owners because insurance outcomes are shaped by more than the premium on the renewal invoice. A softer market may create opportunities to review limits, deductibles, extensions and policy structure, but claims are still being settled in an environment where labour, materials, transport and supply chain costs remain elevated.

Aon’s update describes Australia as a soft market, with overall pricing down by 1 to 10 per cent in the third quarter and property showing larger falls. At the same time, the broker’s commentary highlights claims inflation as a continuing challenge for insurers. In practical terms, that can mean more attention on documentation, causation, scope of loss, reinstatement assumptions and policy conditions when a sizeable claim is lodged.

The construction cost backdrop reinforces that point. The ABS September quarter producer price figures showed output prices for building construction up 4.9 per cent over the year, including a 5.7 per cent annual rise for house construction and a 4.8 per cent rise for non-residential construction. Master Builders Australia also drew attention to input cost pressure, including increases across electrical equipment, plumbing products and non-steel metal products.

For construction businesses, the immediate lesson is not to chase the lowest possible premium in isolation. The more useful renewal discussion is whether the programme still reflects today’s project values, replacement costs, delay exposures and contractual obligations. That includes reviewing how construction business insurance costs are influenced by turnover, project size, claims history, subcontractor use and the type of work performed.

Areas that may deserve closer scrutiny include:

• whether sums insured reflect current reinstatement and debris removal costs rather than older estimates;
• whether indemnity periods are realistic for long-lead materials, specialist plant or imported components;
• whether exclusions, sub-limits and excesses have changed during renewal negotiations;
• whether subcontractor risk controls, certificates of currency and contract terms are properly documented.

Contract works policies are also worth reviewing carefully because a project’s risk can change between tender, commencement and completion. General information on contract works insurance can help frame those discussions, although actual cover always depends on the policy wording, insurer criteria and project circumstances.

The broader message is that softer conditions can be useful, but only if they are used to improve the resilience of the insurance programme. In construction, a cheaper renewal is welcome, but a policy that responds cleanly when costs are rising may be far more valuable.