The Big Bang
Sep 29, 2023
Contractors' Insurance in 2023 and What's in Store for Us in 2024
By: Itzick Simon
The world of construction insurance has undergone quite a few upheavals in recent years, many of which were felt most intensely in Israel. Just before the 2023 summary, we will take a brief but focused look at the prominent trends in the field over the past year, including a forward-looking outlook for contractors' insurance in 2024.
We will start, of course, with the dramatic changes in the world of construction insurance, an issue that has been discussed in Policy Magazine quite a bit in articles written by us and published here, and will only get worse in 2024.
Contractors' Insurance in 2023 and What's in Store for Us in 2024
By: Itzick Simon
The world of construction insurance has undergone quite a few upheavals in recent years, many of which were felt most intensely in Israel. Just before the 2023 summary, we will take a brief but focused look at the prominent trends in the field over the past year, including a forward-looking outlook for contractors' insurance in 2024.
We will start, of course, with the dramatic changes in the world of construction insurance, an issue that has been discussed in Policy Magazine quite a bit in articles written by us and published here, and will only get worse in 2024.
Does contractor work insurance cover up to 1% of the project value?
While many in the industry are hoping for a halt or reversal in the near future, in our opinion the picture appears to be completely opposite. We estimate that the trend of rising prices in contractor insurance in 2023 will only worsen.
As an insurance agency that is in the field every day, and that accompanies hundreds of contractor insurance projects with insurance companies, we see that the policy on the part of insurers is going in one direction. If until a few years ago the price of contractor insurance was about 0.3% of the project value, and in exceptional cases about 0.4%, today figures of about 1% (and sometimes even more) in infrastructure projects or construction projects no longer knock anyone out of their seats.
Unfortunately, this is coupled with the ongoing increase in the cost of construction inputs, which makes construction more expensive (and ultimately passes on to home buyers). The construction input index is constantly rising and, in our opinion, will only continue to climb.
While many in the industry are hoping for a halt or reversal in the near future, in our opinion the picture appears to be completely opposite. We estimate that the trend of rising prices in contractor insurance in 2023 will only worsen.
As an insurance agency that is in the field every day, and that accompanies hundreds of contractor insurance projects with insurance companies, we see that the policy on the part of insurers is going in one direction. If until a few years ago the price of contractor insurance was about 0.3% of the project value, and in exceptional cases about 0.4%, today figures of about 1% (and sometimes even more) in infrastructure projects or construction projects no longer knock anyone out of their seats.
Unfortunately, this is coupled with the ongoing increase in the cost of construction inputs, which makes construction more expensive (and ultimately passes on to home buyers). The construction input index is constantly rising and, in our opinion, will only continue to climb.
The trend of rising prices and worsening conditions in construction insurance in Israel began to be felt in 2020 (although its roots had already sprouted in 2019). There are several reasons for this, and most of the ways lead to a change in policy on the part of reinsurers abroad.
Overseas reinsurers changed their approach at the end of 2019 with the goal of "cutting losses" and embarking on profitable paths. The construction insurance industry found itself at the forefront in light of a large number of natural disasters and events around the world, and the impact also reached Israel.
What was born in 2019 will continue to kick in 2024
Not only that, but reinsurers abroad have tightened their terms towards the Israeli market specifically due to unique characteristics. Among them, for example, an exceptionally high rate of work accidents (including quite a few fatal accidents), a social ruling leading to high compensation (up to millions of shekels even for an injury to a low-wage worker), and the possibility for the National Insurance Institute to return to the insurance companies in subrogation claims after payment of work injury benefits.
Reinsurers are tightening conditions towards the Israeli market
In 2023, we saw a worsening of the difficulty for contractors and developers to purchase insurance for construction work, and even a worrying increase in the number of projects that fail to obtain a policy at all (a very common phenomenon, for example, in insuring building preservation projects).
Following the tightening of conditions by reinsurers abroad, insurance companies in Israel were forced to continue tightening strict underwriting conditions in 2023, especially in urban renewal projects with the addition of balconies, waterproofing, exterior cladding, facade renovation, TAMA 38/1 (reinforcement and expansion), and more.
Refusal to insure is no longer a rare occurrence.
Contractors' Insurance 2024 – What Does the Future Hold?
As we mentioned earlier, we believe that the trends described above will only get worse. At least until the end of 2024, we will continue to see worsening conditions, rising insurance premiums, and an increase in the rate of denials and rejection letters. At this point in time, it seems that only significant steps will be able to slow down the deterioration, as there is no stopping in sight (there is no talk of going back).
On the other hand, there are certainly steps that can be taken to restore sanity to the market. First, as has been shown in previous articles, we are working in collaboration with the Israel Builders Contractors Association to find a regulatory solution to the issue of the National Insurance Institute's subrogation claims. This is an issue that has a great impact on the willingness of overseas reinsurers to operate in the field of construction insurance in the Israeli market.
In addition, as we have already expressed our opinion in the past, a move is needed here on the part of an insurance company that will gather courage and creativity, jump into the deep waters, and turn the crisis into an opportunity. Such an insurance company, if found, may profit from the crisis situation, and take over a significant market at existing rates and accesses - expected to be very profitable. We will continue to monitor.
As we mentioned earlier, we believe that the trends described above will only get worse. At least until the end of 2024, we will continue to see worsening conditions, rising insurance premiums, and an increase in the rate of denials and rejection letters. At this point in time, it seems that only significant steps will be able to slow down the deterioration, as there is no stopping in sight (there is no talk of going back).
On the other hand, there are certainly steps that can be taken to restore sanity to the market. First, as has been shown in previous articles, we are working in collaboration with the Israel Builders Contractors Association to find a regulatory solution to the issue of the National Insurance Institute's subrogation claims. This is an issue that has a great impact on the willingness of overseas reinsurers to operate in the field of construction insurance in the Israeli market.
In addition, as we have already expressed our opinion in the past, a move is needed here on the part of an insurance company that will gather courage and creativity, jump into the deep waters, and turn the crisis into an opportunity. Such an insurance company, if found, may profit from the crisis situation, and take over a significant market at existing rates and accesses - expected to be very profitable. We will continue to monitor.
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