Market Analysis – 84131510 – Contractors all risks insurance

Market Analysis Brief: Contractors All Risks (CAR) Insurance

Executive Summary

The global Contractors All Risks (CAR) insurance market is estimated at $28.5 billion in 2024, having grown at a 3-year CAGR of est. 5.2%. The market is driven by robust global construction and infrastructure spending but faces significant headwinds from increasing climate-related catastrophe losses. The single greatest threat is sustained price volatility, as rising reinsurance costs and stricter underwriting criteria directly translate to higher premiums and reduced capacity for complex projects, impacting project viability and budget certainty.

Market Size & Growth

The global CAR insurance market, a specialized segment of property and casualty insurance, is projected to grow at a compound annual growth rate (CAGR) of est. 4.8% over the next five years. This growth is underpinned by major government infrastructure initiatives and continued expansion in commercial and renewable energy construction. The three largest geographic markets are 1. North America, 2. Asia-Pacific, and 3. Europe, collectively accounting for over 80% of global premiums.

Key Drivers & Constraints

1. Demand Driver: Massive public infrastructure investment, such as the U.S. Infrastructure Investment and Jobs Act (IIJA) and similar programs in the EU and Asia, is a primary catalyst for demand.
2. Demand Driver: The global energy transition is fueling a boom in large-scale, high-value construction projects for renewable energy sources (wind, solar) and battery manufacturing facilities.
3. Cost Constraint: Increasing frequency and severity of natural catastrophes (wildfires, floods, convective storms) are driving up reinsurance costs, which are passed directly to policyholders. This is the primary cause of the current "hard" market cycle. [Source - Swiss Re Institute, March 2024]
4. Cost Constraint: Persistent inflation in construction materials (steel, concrete) and a skilled labor shortage are increasing total project values and, consequently, the sums insured and potential claim costs.
5. Technology Shift: Adoption of Construction Technology (ConTech) like Building Information Modeling (BIM), drones for site surveys, and IoT sensors for equipment monitoring allows for more sophisticated underwriting and risk mitigation, but also requires investment from both contractors and insurers.

Competitive Landscape

The market is concentrated among a few large, global carriers with the balance sheet capacity and engineering expertise to underwrite complex projects. Barriers to entry are High due to immense capital requirements, complex state/national licensing, and the need for specialized loss control and claims adjusting expertise.

• Tier 1 Leaders

  • Allianz SE: Differentiated by its dedicated global construction team (AGCS) and strong engineering risk consulting services.
  • AXA XL: Known for its large capacity, global reach, and ability to handle highly complex infrastructure and energy projects.
  • Chubb Limited: Strong presence in the North American middle and large-account market, with a reputation for underwriting discipline and claims service.
  • Zurich Insurance Group: Offers extensive international programs and has deep expertise in underwriting large-scale civil engineering projects.

• Emerging/Niche Players

  • The Hartford: Strong regional player in the U.S. with a focus on mid-sized commercial construction projects.
  • Tokio Marine HCC: Offers specialized products and has a growing presence in the construction sector, particularly in North America and Asia.
  • Insurtech (e.g., Shepherd, Procore platform integrations): Not carriers themselves, but technology platforms streamlining data flow between contractors and insurers for improved underwriting and risk management.

Pricing Mechanics

CAR insurance premiums are typically calculated as a rate applied to the total project contract value. The final premium is a complex build-up based on the underwriter's assessment of risk, which includes the base rate, loadings for specific risks, and credits for risk management features. Key inputs influencing the rate include: project type and complexity (e.g., tunnel vs. warehouse), geographic location (e.g., seismic zone, flood plain, political risk), project duration, soil conditions, and the contractor's experience and loss history.

The price also includes broker commissions (typically 5-15% of premium) and is heavily influenced by the insurer's own reinsurance costs. Reinsurance is insurance for insurance companies, and its cost is a direct pass-through that reflects global loss trends. The three most volatile elements impacting premiums are:

1. Reinsurance Costs: Increased est. 20-40% at recent renewals due to major global catastrophe losses.
2. Construction Material Costs: The Producer Price Index for construction inputs has risen est. 5-8% over the last 12 months, increasing the total insured value.
3. Catastrophe (CAT) Loading: Location-specific charges for high-risk perils like hurricane, flood, or earthquake have increased est. 15-50% in exposed regions.

Recent Trends & Innovation

• Parametric Insurance Growth (H2 2023): Increased adoption of parametric policies as a supplement to traditional CAR. These policies pay out a pre-agreed sum automatically when a specific trigger is met (e.g., wind speed exceeds 100 mph), providing rapid liquidity after an event.
• Data & Analytics in Underwriting (Ongoing since 2022): Insurers are increasingly leveraging advanced data analytics, satellite imagery, and AI to model climate-related risks (e.g., wildfire, flood) with greater precision, leading to more granular and often higher pricing in high-risk zones.
• Focus on "Water Damage" and "Defective Workmanship" Exclusions (Q1 2024): In the hard market, underwriters are applying stricter terms and sub-limits for water damage (the leading cause of non-catastrophe CAR claims) and LEG/DE (defective workmanship) clauses, shifting more risk back to the contractor.

Supplier Landscape

Regional Focus: North Carolina (USA)

Demand outlook in North Carolina is High. The state is experiencing a construction boom driven by the Research Triangle's tech and life sciences expansion, significant manufacturing investments (EVs, batteries, semiconductors), and robust population growth fueling residential and commercial development. Local carrier capacity for large, complex projects (>$500M value) is limited; the market is dominated by national and global carriers (Chubb, Travelers, Zurich) accessed through regional and national brokers. A key underwriting consideration is the state's significant exposure to Atlantic hurricanes, which results in higher premiums, mandatory wind/hail deductibles (2-5% of project value), and reduced capacity for projects in coastal counties (Tier 1 & 2).

Risk Outlook

Actionable Sourcing Recommendations

1. Implement a Data-Driven Broker/Carrier Dialogue. Proactively provide underwriters with detailed risk-mitigation data beyond standard applications. This includes BIM models, geotechnical reports, site-specific flood analysis, and contractor quality control plans. This can justify premium credits of 3-5% against market-wide rate increases by demonstrating a superior risk profile.
2. Explore Master Programs and Multi-Year Deals. For a portfolio of planned projects, consolidate CAR coverage under a single master program. This aggregates premium to increase negotiating leverage and can lock in terms for 24-36 months, providing budget certainty and administrative efficiency. This strategy can yield savings of 5-8% versus sourcing project-by-project.