The construction segment has faced many challenges during the COVID-19 pandemic, from supply chain disruptions and material shortages to social distancing requirements and sick workers. After a turbulent market in 2020, certain lines of business are experiencing some stabilization. However, 2021 was a banner year for the construction industry, and until today, consumer appetite for new homes and builder optimism about the future remain incredibly strong. For BuildersRisk.Net specialists, it has been an extraordinary journey with over 2550 sold policies during the year. This milestone represents a significant increase in sales for the company and underscores its commitment to providing quality insurance products to every kind of builder.
The under construction and subsequent supply shortages have led to housing bidding wars and a surge in home prices. Extremely low interest rates, a COVID-inspired move from cities to suburbs, Generation X reaching their peak earning years, and millennials entering the housing market in large numbers have amplified demand for housing. The federal government's mortgage forbearance program and baby boomers choosing to hold on to homes longer have also reduced existing housing stock. It all means there is enormous pressure on builders to break ground on new homes, and new home starts are up again this year to levels not seen since before the Great Recession.
- Commercial construction has also increased
The commercial side of the business is additionally experiencing vigorous growth. With recent development comes retail, food service, gas stations, medical clinics–the infrastructure needed to support communities. For those core business services, construction is growing at about the identical rate as residential construction. Underutilized commercial space is being converted to apartments and condominiums. Entrepreneurs are buying up vacant restaurants and stores and starting new businesses. And employers are reopening offices closed during the pandemic.
Renovation and remodeling are still hot. Total renovations are outpacing remodels as commercial buildings are being destroyed and reused. To be clear, some segments remain weak mainly thanks to the impact of the pandemic. Accommodation, amusement and recreation, religious institutions, public safety, and academic facilities are being reduced, although many of them are setting out to recover. Furthermore, they have a big surplus of office space in most major cities. The surge in construction has had its challenges. Supply chain disruptions have caused tremendous increases in material costs and delayed project completion. There's also a critical shortage of skilled labor, and ready-to-dig land is briefly supplied in many areas.
In August 2021, the NAHB reported that prices for building supplies were rising at a record pace, up 19.4% in the past 12 months. To put that into perspective, material prices rose 13% during the first seven months of 2021 compared to just 1.1% in the same period in 2020. While nearly every area of the US is experiencing double-digit construction growth, some areas are growing much faster than others. Regional differences aren't crumbling like they have in the past, like the West or Southeast overtaking the Northeast or Midwest. Instead, demand for new construction is being driven by outward migration, affordability, and a highly mobile workforce. This is creating pockets of high growth in all regions of the country, even in those that have historically not performed well. Places where the cost of living is lower and jobs are plentiful have become the hot alternative places to live.
- A National Construction Insurance Trend
In the builder's risk insurance market, which covers materials, fixtures and equipment installed during the course of construction or renovation, US Assure saw double-digit increases in residential premiums through all 2021 in nearly every state, with some for over 50% compared to 2020. Contractor hours have increased significantly. A builder who may have worked on 10 to 15 houses a year in the past is now building 30, 50, or even 100 houses. That also means more premium dollars for other coverage contractors need, like general liability, property and commercial auto.
And it's not just builders' risk, general liability has skyrocketed as well. Wildfires, hurricanes, tornadoes, ice storms, floods, and other catastrophic events have contributed to rising rates. In 2020, there were 30 named storms in the US and 2021 were nearly 50 wildfires. Huge losses have squeezed insurers and caused many carriers to back off.
- How Builder’s Risk Works
The builder's risk insurance policy will protect contractors from delays on projects that are under construction. Insuring a building is a fundamental part of any insurance policy since when a contractor goes to a broker to obtain this type of coverage, they are not only insuring people, goods, or risks but also interest by the contracting party which ensures that the loss does not happen. This policy is issued for a certain project during a specific period, such as three, six, or twelve months during the ongoing construction for a required project.
Insurance for builders can pay for materials, fixtures, equipment, and the structure itself, in an incident where those assets are being damaged or destroyed because of a fire, theft, vandalism, or extreme weather situation such as earthquake or floods.
It is worth mentioning that the cost of the policy will usually be determined with the entire project value, which will be between 1% and 5%. There are four key factors which will affect the price: what kind of project it is, the type of the material used for it, the construction location and the project duration.
- The right way to protect a project
Despite shortages, high prices and a tightening insurance market, building permits and construction spending have soared to new heights in 2021. Construction continues red hot and shows no signs of slowing down. That is not to say that the ride is completely smooth or that the path is perfectly straight. But everything indicates that the road will be wide, with plenty of room for contractors who want to grow and one of the best decisions would be to choose a genuine and experienced and independent broker like BuildersRisk.Net, since they work with multiple carriers, have a wide expertise on the industry and certainly it is much easier and less expensive, to get a policy that specifically meets the project’s needs and requirements.
BuildersRisk.net offers competitive quotes for a variety of insurance plans tailored to contractors, builders, homeowners, business owners, and more. They represent the top 3 Builders Risk insurance carriers, plus 7 additional companies. Their professional agents have provided the construction industry with same-day certificates as well as instant quotes to ensure fast and convenient service. They have in-house binding authority and can have a policy bound over many times in less than one hour.