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Builders have faced rising insurance costs for some time now. In fact, according to Univest Insurance, residential construction insurance premiums have risen 5% to 15% annually for each of the past four years.

The jumps stem from a number of factors, including surging material costs, increases in natural disasters and extreme weather events, and rising instances of build site theft.

The pandemic has a lot to do with it, too. As Deanna Koestel, co-chair of construction law at Pashman Stein Walder Hayden, explains, “COVID-19 brought a number of new challenges to the building industry, including a skilled worker shortage, project interruptions and delays, supply chain issues leading to higher material costs, and additional work practices and safety issues. These concerns exacerbated already rising costs due to increased cybersecurity exposure and catastrophic weather events that have significantly impacted the industry over the past few years.”

Unfortunately, the pandemic is not yet behind us. And extreme weather events and high material costs? Those are still around, too. Does this mean builders should buckle in for yet another year of surging premiums, or will things start to level out?

According to most experts, construction insurance costs will continue their climb as we get further into 2022. For one, demand for new construction (and all homes, for that matter) is incredibly high. When you throw in increasing supply costs, new-home prices, and the costs to rebuild these properties should a disaster occur, premiums will rise in step.

Ongoing labor shortages will also rear their head, according to Erik Cofield, executive business coach for the Association of Professional Builders. “The industry—and almost every builder—does not have enough people,” Cofield says. “The crews are spread very thin, and accident rates are bound to rise with more volume and no reduction in volume in sight.”

How To Bring Costs Down

Builders don’t have to take these increasing costs lying down. According to the pros, there are many ways to minimize premiums, even in the face of seemingly unavoidable challenges.

“When we’re trying to reduce premiums organically for our construction clients, we encourage them to focus on two things: their safety culture and their claims experience,” explains Reggie Reiter, senior vice president at Univest Insurance. “Focusing on these two areas has the potential to not only help save money on insurance but also help the bottom line and attract and retain first-class employees.”

On the safety front, builders can lower the risk they present to insurers—as well as the premiums that risk comes with—by better safeguarding their tools, materials, equipment, and other jobsite supplies. This might include fencing in builds, installing security cameras, hiring off-hours security personnel, or even adding GPS monitoring to construction vehicles and larger equipment.

Safeguarding employees is vital as well and may have the biggest impact, especially with liability claims increasing in recent years.

“The biggest increases we have seen are on the excess liability limits,” says Dan Schaller, senior vice president at insurance brokerage Woodruff Sawyer. “Increases in jury awards, medical cost inflation, among other factors, are driving claims into the excess limits. Carriers came to the conclusion that they were way underpriced and either retreated from the market or substantially increased pricing while reducing the limits they offer. The price of a $5 million excess policy is what you previously paid for $20 million.”

To better protect employees, experts suggest installing multiple fire extinguishers and smoke detectors on jobsites, hanging no smoking/no vaping signs, and even implementing wearable devices that ensure proper distancing. This can reduce COVID-19 spread (and the subsequent delays and outbreaks that often come with it).

According to Reiter, having a formal safety and training program is another good way to show insurers you’re risk-averse, too. As he puts it, “A well-developed, documented, and executed safety program will result in fewer injuries, fewer claims, and, in turn, decreased insurance expenses.”

Builders also can implement project management software to keep jobs from getting delayed, have strong subcontractor agreements that protect from negligence, and, when appropriate, take on higher deductibles.

As a last resort, there’s always the option to reduce coverage, too, but experts say builders should tread lightly on this front.

“Remember that insurance is meant to protect and help the insured recover from events that might otherwise create a solvency issue,” says Joseph Lam, senior director at risk assessment firm Verisk. “Cutting costs through other means may be more prudent. Reducing coverage and retaining more risk should be a last resort.”