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Construction Industry Update: Pacific

Construction prospects in the Pacific last year faced rising costs, labor shortages, and delays in project execution, leading to stunted growth of 1.2% across the region.  

Nevertheless, government initiatives in infrastructure, affordable housing, and renewable energy – such as New Zealand’s National Land Transport Fun, and Australia’s HomeLink Project – will help combat visible, construction-impeding headwinds towards 2030. 

The construction industry in Australia is expected to record an average annual growth rate of 2.9% over the forecast period, from 2025 to 2028, owing to the increased investment in renewable energy and transport infrastructure projects. 

In New Zealand, the construction industry is expected to record an annual average growth rate of 3.4% in the three years to 2028, supported by investments in transportation, renewable energy, health, and education infrastructure projects.  

Pacific

Product update

In the first half of the year, the builder’s risk market generally saw flat to minimal rate increases, with flat rates in the second half of the year other than for well-performing accounts, which saw small rate reductions. Terms and conditions were generally stable, however, some insurers pushed for non-standard restrictions rather than underwrite the individual risks.

During 2024, carriers looked to increase their capacity and previously departed insurers re-entered, potentially boding well for 2025 and beyond.

There were no changes in rates or appetite for LEG 3 and delay in start-up (DSU). 

Greater competition was observed for general liability, especially from the London market which saw renewal premiums generally flat and project-specific rate reductions of between 5% to 20% as insurers sought to expand or take on new business opportunities. Terms and conditions for general liability remained unchanged in 2024, with the exception of increased focus on treaty type exclusions. Claim trends, specifically in the worker-to-worker liability space, trended upwards.

Several new insurers drove competition in the excess/umbrella liability market, which led to reductions in premiums. Some companies sought to take advantage of saving in the excess of loss space by purchasing higher limits. Similar to the primary market, expanded or new business revenue budgets drove rate reduction in the project-specific space. Renewals saw rates increase between 5% to 10%, while project-specific ranged from 5% to 15%.

Average rates for environmental liability were flat to 5%. Insurers increased rates in 2024 due to increased reinsurance costs and claims activity, as well as inflation. In competitive situations, the average rate reduction ranged from flat to 10%. This trend is expected to continue into the first half of 2025. PFAS continues to be a significant area of concern for insurers globally. Insurers in Australia have varying appetite for insuring PFAS risks.

In 2024, the Australian environment liability market softened due to heightened competition for existing business (renewals). This was driven by a decline in the number of new business opportunities (new policies/projects) compared to the previous year. Consequently, insurers faced challenges in achieving their growth targets. As a result, remarketing accounts frequently resulted in lower rates or smaller proposed rate increases.

The Australian construction PI insurance market benefited from several new carriers and capacity into both the global and local PI markets. The majority of new entrants focused on small to medium -sized enterprises (SMEs), however several showed capabilities in writing larger contractors.

The PI market saw rate fluctuations ranging from 5% increases to decreases of 30%. The biggest reductions came as a result of the new entrants to the market, which helped create the competitive environment required for some clients’ rates to reset to a more appropriate baseline.

Rates were flat for single project PI. This market did not benefit from an influx of capacity, as seen in the corporate annual space. In the second half of 2024, there was an increase in interest from clients in procuring single project PI.

Surety rates for constriction companies increased in response to claims. Surety appetite remained strong, although cautious for Tier 1 and 2 construction companies. There is limited surety capacity for other companies, and only one surety was willing to consider facilities for companies with annual turnover below AU$50 million.

The Pacific observed a steady reduction in cyber rates for construction, accompanied by enhanced coverage and lower waiting times or retentions.

Sample benchmarking data from Marsh's construction client group showed an above-average rate reduction of 11.9%, compared to other industries in the region, which ranged from 5% to 11%. These savings resulted from several favorable conditions, including increased maturity in insureds’ cyber security architecture, a better understanding of cyber risks and exposures, and improved capabilities for detecting, preventing, and responding to cyber incidents. Increased investor confidence also led to more capital in the insurance market, allowing for greater capacity.

These buyer-friendly trends in premiums and coverage are expected to continue into the first half of 2025.         

Cover extensions that were once limited are increasingly accessible to policyholders that can demonstrate strong cyber risk maturity. 

Global construction market update

We hope this update offers buyers a more encouraging picture about the direction of travel for rating in the construction insurance sector in the coming 12 months.                             

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