Specialty brokerage Amwins has reported ongoing growth in capacity in the builders risk insurance market, which began in late 2023 and has continued into 2024.
This expansion is driven by both new entrants and existing markets increasing their share. A notable increase in follow capacity could reduce the number of markets needed to complete deals or replace those with inflexible terms.
However, brokers are encountering challenges with CAT capacity, as many markets limit their line sizes. New York remains a particularly difficult environment for CAT coverage, and in Florida and other coastal regions, CAT risks face sublimits on named windstorm (NWS).
While wind coverage is available, cost considerations heavily influence clients' decisions on purchasing full limits. High crime-score areas, including the Bay Area/Oakland, Portland, downtown Los Angeles, Nashville, and Phoenix, are experiencing higher rates and deductibles.
Regionally, increased capacity and reduced demand due to fewer project starts have led to market softening. Rates have flattened, and markets show a willingness to take on risk, including in the wood frame sector.
Amwins welcomed the new insurance carrier and MGA capacity that has entered the market, although it said that many new players lack the long-term expertise and policy lifecycle management experience of established providers. These new entrants have created a price ceiling that did not exist from 2020 to 2022.
Terms and conditions remain stable, with brokers able to secure minor enhancements from underwriters in “soft” coverage areas such as escalation, permission to occupy, and guaranteed extensions. Guaranteed or automatic extension periods, which had diminished during the hard market, are expected to reappear in policies, quotes, and binders.
The brokerage notes that the most challenging conditions will persist in wildfire-prone and high crime-score areas, raising questions about whether carriers will start offering deductibles for wildfire risks. Although the market has largely recovered from COVID-19 and the civil unrest of 2020, fluctuations continue. An economic uptick is anticipated in the coming months, although construction typically slows in the first part of an election year.
Amwins says that insureds will benefit from ongoing coaching on capacity-constrained placements, particularly in selecting experienced lead markets and being realistic about site protections, deductibles, and rates. Supply chain issues have become less significant recently, with material costs stabilizing.
However, labor shortages remain a challenge, often causing project delays and necessitating program extensions. Terms may change during these extensions, as risks bound 24 to 30 months ago are being amended.
Inflation continues to influence the cost of insurance programs, with project values potentially increasing during construction. However, concerns in the builder's risk space have diminished since 2022. Valuations have improved and align more closely with market prices, except in parts of Texas.
The interest rate environment continues to suppress some construction activity, particularly among smaller developers who typically seek short-term real estate holdings. Tier 1 developers, who manage properties for extended periods, can better support higher interest rates through ongoing lease cash flow. Until interest rates decline, fewer program opportunities are expected from Tier 2 or 3 developers.
“Our ‘State of the Market’ report provides invaluable insights into the evolving landscape of Builders Risk insurance coverage,” Amwins Brokerage executive vice president and national construction practice leader Grant Chiles (pictured above) said.
“Our detailed analysis equips brokers and clients with the necessary tools to navigate the complexities of today's market, helping them secure the best possible terms and pricing for their clients' needs,” he said.
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