Market Analysis – 84131513 – Erection all risks insurance

Executive Summary

The global Erection All Risks (EAR) insurance market, a critical sub-segment of engineering insurance, is experiencing a period of significant hardening. Driven by a surge in large-scale infrastructure and renewable energy projects, the market is projected to grow, yet this is tempered by escalating claim severity due to climate events and supply chain volatility. The 3-year historical CAGR is estimated at 6.2%, with premiums rising faster than exposure growth. The single greatest threat is the shrinking availability of underwriting capacity for complex risks, coupled with sustained high price volatility, as reinsurers pass on significant rate increases following record natural catastrophe losses.

Market Size & Growth

The direct market for EAR insurance is a component of the broader global construction and engineering insurance market, which serves as the primary Total Addressable Market (TAM). This market was valued at approximately $29.5 billion in 2023. Growth is propelled by global investment in infrastructure, energy transition projects (wind, solar), and advanced manufacturing facilities. The Asia-Pacific region, led by China and India, represents the largest and fastest-growing market, followed by North America and Europe.

Top 3 Geographic Markets: 1. Asia-Pacific 2. North America 3. Europe

Key Drivers & Constraints

1. Demand Driver: Global infrastructure spending, including government stimulus programs (e.g., U.S. Infrastructure Investment and Jobs Act) and the energy transition, is creating a robust pipeline of large-scale projects requiring EAR coverage.
2. Demand Driver: Increasing project complexity, such as offshore wind farms and semiconductor fabrication plants, necessitates higher insurance limits and specialized underwriting expertise.
3. Cost Constraint: Sustained inflation in construction materials (steel, copper) and skilled labor directly increases the Total Insured Value (TIV) of projects, driving up the premium base before rate adjustments.
4. Supply Constraint: A "hard market" cycle, characterized by reduced underwriting capacity and stricter terms. Insurers are de-risking their portfolios after several years of significant natural catastrophe (NatCat) losses, making it difficult to place coverage for high-risk projects or locations. [Source - Marsh, Global Insurance Market Index, Q1 2024]
5. Risk Driver: Increased frequency and severity of secondary perils like floods, wildfires, and convective storms are leading to higher-than-modeled losses, causing insurers to re-evaluate their risk appetite and pricing models.
6. Regulatory Driver: Heightened Environmental, Social, and Governance (ESG) standards are pressuring insurers to limit or withdraw capacity for carbon-intensive projects (e.g., coal-fired power plants), shifting capacity towards renewable projects.

Competitive Landscape

Barriers to entry are High, requiring immense capital reserves to underwrite multi-billion-dollar projects, extensive global reinsurance agreements, and deep in-house engineering and risk assessment expertise.

⮕ Tier 1 Leaders * Allianz Global Corporate & Specialty (AGCS): Differentiated by a vast global network and one of the largest and most experienced engineering risk consulting teams. * AXA XL: Known for its significant capacity and expertise in complex, large-scale international construction and infrastructure projects. * Zurich Insurance Group: Strong focus on risk management services and a broad appetite for mid-market and large construction risks. * Chubb: A leader in the North American market with a reputation for strong claims handling and underwriting discipline.

⮕ Emerging/Niche Players * HDI Global SE: German-based insurer with growing international reach and strong technical expertise in industrial and power generation projects. * Liberty Mutual (Ironshore): Offers specialized construction coverages, including for builder's risk and wrap-up programs, often targeting complex U.S. domestic projects. * Lloyd's of London Syndicates: A collection of specialized syndicates (e.g., those managed by Beazley or Hiscox) offering bespoke capacity for unique or high-hazard risks that standard markets may decline. * Tokio Marine HCC: Strong presence in the U.S. and Asia, with a focus on specialized lines and a reputation for tailored underwriting.

Pricing Mechanics

EAR insurance premiums are primarily calculated as a rate applied to the Total Insured Value (TIV) or total contract price of the project. This base rate is then heavily modified by numerous factors, including project type and complexity (e.g., a bridge vs. a standard warehouse), geographic location and its exposure to natural perils (earthquake, windstorm), project duration, the contractor's experience and loss history, and the level of deductible chosen. The final premium is a composite of risk premium, expense loading, and profit margin.

The pricing structure is currently experiencing extreme upward pressure in a hard market. Underwriters are deploying less capacity and demanding higher rates for the risk they assume. They are also enforcing stricter terms, such as higher deductibles for water damage and other perils, and adding sub-limits for risks like project delays (Delay in Start-Up coverage). The cost of reinsurance is the single largest external factor, as primary insurers pass on increases from their own reinsurers.

Most Volatile Cost Elements: 1. Reinsurance Rates: Global property-catastrophe reinsurance rates-on-line increased by an average of +30% during the January 2023 renewals, with continued firming since. [Source - Howden, Reinsurance Market Report, Jan 2024] 2. Steel & Fabricated Metals: Prices remain volatile, with indices showing fluctuations between -10% to +15% over the last 18 months, directly impacting insured values. 3. Delay in Start-Up (DSU) Coverage: Capacity for DSU has tightened dramatically, with rates increasing by 50%-100% or more for projects with high supply chain exposure.

Recent Trends & Innovation

• Parametric Insurance (Q3 2023): Increased adoption of parametric triggers for specific perils like windstorms or earthquakes. These policies pay out automatically when a pre-defined event metric (e.g., wind speed >100 mph) is met, enabling rapid liquidity for recovery and bypassing lengthy loss adjustment processes.
• Underwriting Technology (Ongoing): Insurers are increasingly leveraging drone imagery, satellite data, and Building Information Modeling (BIM) to conduct remote site assessments and monitor project progress. This data provides more accurate underwriting insights and can identify potential risks earlier.
• ESG-Driven Underwriting (Q1 2024): A growing number of Tier 1 carriers have publicly announced restrictions on underwriting new thermal coal and certain fossil fuel projects, reallocating that capacity to renewable energy and "green" construction projects.
• Supply Chain Scrutiny (Ongoing): Underwriters now perform deep dives into project supply chains. A project's reliance on single-source suppliers or components from geopolitically sensitive regions is a major factor in pricing and availability of Delay in Start-Up (DSU) coverage.

Supplier Landscape

Regional Focus: North Carolina (USA)

Demand for EAR insurance in North Carolina is strong and accelerating. The outlook is driven by three core factors: a boom in advanced manufacturing investment (e.g., EV/battery plants from Toyota and VinFast), continued expansion of life sciences and biotech facilities in the Research Triangle Park, and state/federal funding for public infrastructure upgrades. However, the state's significant exposure to Atlantic hurricanes and severe convective storms presents a major challenge for underwriters. Insurers are applying higher rates, mandatory wind/flood deductibles, and requiring detailed site-specific catastrophe modeling for any project in central or eastern NC. Local capacity is almost entirely fronted by national and global carriers operating through major brokerage hubs in Charlotte and Raleigh; there is minimal native North Carolina-based capacity for large, complex erection risks.

Risk Outlook

Actionable Sourcing Recommendations

1. Consolidate Spend and Pursue Portfolio-Based Placements. Move away from single-project transactions. Bundle our annual portfolio of planned projects and approach 2-3 strategic carriers for a master program. This provides insurers with a predictable premium stream, enabling us to negotiate improved terms, secure dedicated capacity, and achieve estimated premium efficiencies of 5-8% versus the volatile open market.
2. Mandate and Co-Invest in Risk-Mitigation Technology. Require all major projects to utilize BIM for design and drone-based surveying for progress monitoring. Proactively share this data with underwriters to demonstrate superior risk control. This data-driven approach can justify premium credits of 3-5% and unlocks access to higher-quality underwriting capacity by positioning our firm as a best-in-class risk.