Tariffs and inflation have long been pressing concerns for the construction industry, but in recent years, their impact on builder’s risk insurance has become even more pronounced. As material costs fluctuate and supply chain issues persist, contractors and insurers alike are reconsidering approaches to risk mitigation, pricing, and project planning.
The uncertainty surrounding tariffs has made it difficult for contractors to project costs with any degree of confidence. That uncertainty is compounded by inflation, which has driven up the price of materials, labor, and transportation.
Brian Cooper (pictured), US national construction practice leader at Gallagher, emphasized that the ability to anticipate changes is now a critical factor in successful project execution. Cooper told Insurance Business that negotiations over price escalation clauses have become the norm.
“These clauses adjust payments if material costs increase due to tariffs, inflation, or supply chain disruptions. This prevents contractors from shouldering all the financial risk themselves,” he said.
“Owners, who will benefit from the facility for decades, now take on more of that risk instead of placing it all on contractors. This is becoming a more common practice in contract negotiations, ensuring that cost fluctuations, driven by tariffs or other factors, don’t solely burden builders.”
The financial burden of these increases doesn’t just land on contractors, it also extends to insurers who must determine how to underwrite policies in an increasingly volatile market. Builder’s risk insurance, which covers structures under construction, must now account for the reality that replacement costs are no longer static.
At the same time, construction projects are getting larger, more complex, and longer in duration, Cooper pointed out. The growing complexity of builder’s risk policies reflects that broader industry shift. Ten years ago, a major construction project might have had one or two insurers handling the coverage.
“Instead of a single carrier assuming full responsibility, there’s more capacity rationing across multiple insurers,” Cooper said.
This quota-share approach, he said, is an attempt to spread the risk. But it also means negotiations are more intricate and coverage gaps are more likely if policies aren’t meticulously coordinated. That fragmentation makes it even more important for contractors to secure favorable terms upfront, rather than scrambling to adjust coverage when costs spiral out of control.
Another concern is the valuation of builder’s risk policies. Given that inflation and tariffs can dramatically impact the cost of completing a project, insurers want to ensure that the valuation of insured properties accurately reflects real-world replacement costs.
The financial unpredictability of construction projects also means that insurance carriers are scrutinizing projects more closely before agreeing to provide coverage. “There's much more upfront negotiation and planning now,” said Cooper.
“Project owners, developers, and insurers are considering environmental risks—windstorms, wildfires, flooding—at the earliest stages. How can those risks be minimized? Should we build here at all? These discussions are happening earlier than ever before.”
For instance, many construction projects now include the installation of remote sensor-activated sprinkler systems that are engaged automatically in the event of fire or smoke. These features are incorporated into the design and planning phases rather than being an afterthought, Cooper said, and while the upfront approach significantly impacts budgeting, it also makes projects safer and more insurable.
Timing is another critical factor. Projects that were once expected to wrap up in 24 months may now take an additional six months or more due to rising costs and unpredictable delays. The pandemic underscored this reality, according to Cooper, and though supply chain issues have improved, certain materials still have lead times that stretch beyond what most project managers are comfortable with.
Cooper noted that contractors have adapted by securing materials much earlier than they used to. “The standard procedure now is contractors negotiate with the clients to get paid for (those materials) with long lead times right away, so that they’re not at the mercy of the supplier,” he said.
This strategy allows builders to maintain some control over timelines and costs, but it also requires a more substantial financial commitment at the outset of a project.
Beyond early purchasing, supply bonds have emerged as another tool to manage risk in a volatile pricing environment. By securing a bonded obligation from suppliers, builders gain leverage to ensure materials arrive on schedule and at the agreed-upon cost.
Cooper has seen this approach gain traction as contractors look for ways to shield themselves from the financial instability of the global supply chain. “These bonds ensure that suppliers deliver materials on time and to spec, giving contractors more leverage if issues arise,” he said. “Suppliers tend to prioritize bonded obligations over unbonded ones, which helps keep projects on track.”
As the financial pressures on construction continue to mount, it’s no longer just about securing builder’s risk insurance, it’s about securing the right insurance with the right terms.
Contractors and project owners must be prepared for detailed discussions about how they plan to mitigate rising costs, what contingency plans they have in place, and whether their valuation estimates truly reflect market conditions.
Cooper emphasized that the days of treating builder’s risk insurance as a last-minute consideration are over. “The biggest trend is the increasing use of risk mitigation measures and early planning,” he said. “It’s no longer about waiting until a project is fully designed before seeking insurance. Instead, insurers want to see risk management strategies incorporated from the start.”
The ripple effects of tariffs and inflation have reshaped the way construction projects are insured, forcing a more proactive, strategic approach to coverage. Insurers are demanding greater transparency, and contractors are responding by embedding risk mitigation strategies into their initial planning phases.
“Early discussions with insurers, site visits, and demonstrating how risks are being managed are key,” Cooper said. “This proactive approach applies to all aspects of construction risk management but is especially critical for builder’s risk insurance.”
Are you a broker who works with construction clients? Are you seeing these trends play out in the industry? Please share your perspective below.
