The surge in data center development has introduced unique insurance challenges. Therefore, it is increasingly important for policyholders to scrutinize their policies to ensure that new and elevated risks associated with data center projects are covered.

Builder’s Risk Coverage: Protecting the Project

Data Centers Are Unique Construction Risks

Builder’s risk insurance protects against physical loss or damage to property during the construction process. This includes loss or damage to the structure itself, as well as materials, equipment and machinery used in construction.

Builder’s risk insurance is crucial for data centers, where construction is particularly complex and involves integrating highly specialized systems—such as advanced computer infrastructure and sensitive electronic components—that are especially susceptible to risks such as fires, water damage and other losses arising from the failure of climate control systems during the construction process. Note that standard builder’s risk insurance may sublimit coverage for certain high-value equipment.

Geographic location may also amplify these risks. Many data centers are built in regions prone to natural disasters because of logistical or strategic advantages—e.g., in wide open spaces close to major urban centers. In addition to causing physical loss or damage, these events can cause significant project delays. In any event, traditional builder’s risk policies tend to exclude coverage for extreme weather-related delays.

Insurance Companies Are Working to Bridge the Gap

The construction boom in data centers has amplified project risks and made comprehensive builder’s risk insurance critical. But standard policies create problems. As noted above, they leave meaningful coverage gaps for data center construction, as explained above.

In response to these shortcomings, insurance companies have begun developing specialized insurance products. For example, Zurich North America, among others, has launched Data Center Project Guard, a tailored version of their builder’s risk insurance intended to bridge the gap between traditional builders risk insurance and the realities of data center construction projects. The product expands coverage by dedicating limits for climate control system failure, extending protection for losses at a supplier’s location, during transit or at offsite locations, and offering operational property coverage to mitigate coverage gaps that may arise during phased handovers. It also includes limited coverage for project delays associated with extreme weather events, even in the absence of physical damage.

As the insurance industry adapts to the data center construction boom, similar specialized insurance products are likely to enter the market. Meanwhile, data center owners and operators should review their traditional policies and ensure they address their unique risk exposures.

Liability Insurance: Protecting Against Third-Party Claims

Commercial General Liability

Data center construction and operations can bring a unique set of environmental and safety concerns to surrounding communities and ecosystems, all of which highlight potential liability risks faced by data centers. For instance, data centers consume a substantial amount of energy, and as more facilities are constructed, the strain on local power grids will intensify, impacting energy availability and costs.

Additionally, data centers are heavily reliant on water to cool servers from overheating, which can exacerbate the water crisis in regions suffering from climate-related shortages. Operations and construction also contribute to noise, emissions and water temperature pollution. Those living in communities near large data centers have reported health concerns linked to the unceasing background noise and toxic fumes. Commercial general liability policies, which provide coverage for claims alleging “bodily injury” or “property damage,” may provide protection for future lawsuits alleging harm due to these hazards.

Professional Liability: Errors and Omissions

Errors and omissions coverage insures professionals—usually consultants—for any mistakes, negligence or failures made in the course of providing a professional service. Coverage extends to data centers functioning in a service provider capacity, including facilities offering data storage solutions or maintaining server environments critical to customer operations. To the extent developers or operators involve engineering or design consultants in the construction and development stage, it is important to verify E&O coverage is in place, and to review and negotiate “additional insured” provisions in those policies.

Property and Business Interruption Insurance: Protecting Operations

Property insurance policies protect against physical loss or damage to the insured property and assets after construction is complete. This coverage is especially important considering the unique systems and equipment housed within data center facilities.

A defining feature of data centers is the massive amount of digital data stored on physical hardware within the physical structure, and coverage for that kind of data may or may not be provided, depending on the policy’s language. Thus, policyholders should examine their policies to ensure there are no gaps in coverage and, where necessary, seek endorsements or supplemental coverage to ensure data-related losses and other properties and components are adequately insured.

Commercial property policies commonly include business interruption coverage, which allows policyholders to recover loss of business income and increased operating expenses that resulted from a covered physical loss to the property. This type of coverage is particularly important for data centers, which depend on continuous twenty-four hour access to power and electricity and, therefore, face greater risk of losses stemming from power outages and other system failures. Thus, when a data center is forced to suspend operations due to a power or system interruption, business interruption may provide coverage for lost revenue and other expenses. Because the scope of coverage may vary depending on the terms of the policy, policyholders should pay careful attention to such terms to ensure it provides meaningful coverage for service interruption losses.

Cyber Insurance Coverage: Protecting Your Data

Data centers are beginning to become a target for bad actors because of the financial consequences if there is a disruption in service. Data centers naturally face significant cyber risks, such as data breaches, ransomware attacks, computer system failures, data privacy liabilities and potential third-party liability to clients, customers and shareholders. Therefore, data center owners and operators should therefore consider purchasing cyber insurance and should closely review the terms of their cyber policy to ensure appropriate coverage and negotiate coverage accordingly.

Cyber policies typically cover the policyholder’s own business interruption, but data center operators must ensure coverage extends to:

• Revenue losses from service level agreement credits and penalties owed to customers
• Costs to restore operations following ransomware attacks or system failures
• Expenses for crisis management and forensic investigation
• Hardware replacement costs when cyber incidents cause physical damage to servers or infrastructure

Data center owners and contractors must review their insurance programs to make sure there is coverage for the above-referenced damages stemming from cybercrime.

Tariffs and Data Centers

For more than a year, global markets have been buffeted by the current administration’s on-again off-again tariffs targeting countries around the world. Most recently, after the US Supreme Court struck down the tariffs imposed under the International Emergency Economic Powers Act (IEEPA) on February 20, the administration imposed a 10% tariff on almost all imports under Section 122 of the Trade Act of 1974. While these tariffs were also ruled illegal by the U.S. Court of International Trade in May, they remain in effect while the case is appealed and will be collected through July 24. Looking ahead, the United States Trade Representative (USTR) has proposed new 10-12.5% tariffs on imports from 60 countries alleged to fail to enforce a prohibition on forced labor under the authority of Section 301 of the Tariff Act of 1974.

Tariffs, needless to say, can cause delays and create supply shortages. To prepare, contractors and subcontractors should draft their contracts with a specific eye towards the consequences of these unpredictable, ever-shifting tariffs. Owners and general contractors should consider subcontractor default insurance. Due to the higher tariffs, subcontractors may not be able to obtain the materials necessary to complete projects. This may lead to subcontractors walking off the project, leading to significant critical path delays. While subcontractor default insurance will not save the project from experiencing delays, it will help owners and general contractors recoup some of the resulting financial losses.

As of today, the tariffs are no longer going into effect, but this can change at a moment’s notice, so prudent drafters must keep these drafting points in mind.

Political Risk Insurance

Escalating governmental intervention in data center material procurement creates exposure requiring political risk insurance mitigation. PRI coverage addresses financial losses arising from political events or sovereign actions. Renewable energy projects have established precedent for PRI deployment in jurisdictions presenting political or economic instability. Marsh’s April 2024 placement exemplifies this approach: A $36-million policy covering a Mali-based renewable facility servicing lithium extraction operations, with protection extending to both asset damage and governmental interference.

The development and investment in data centers will only accelerate, especially given efforts by the federal government to facilitate the development of these projects. The insurance industry seems to be adapting accordingly, but in the meantime, policyholders should carefully review their policies to ensure that they have comprehensive coverage for these projects.

SEE ALSO: FOUR WAYS BUILDERS RISK COVERAGE IS RESHAPING CONSTRUCTION RISK MANAGEMENT

The post Risk Management for Data Center Construction and Operation first appeared on Construction Executive.

For nonresidential contractors and owners operating in today’s compressed schedules and cost-sensitive environment, fit-outs require more than quality craftsmanship. They demand disciplined preconstruction planning, early coordination and clear accountability.

The following five pitfalls routinely disrupt commercial fit-outs. But there are practical planning strategies that prevent them.

1. Scope Gaps That Trigger Change Orders

Few factors erode trust faster than change orders that originate in gray areas.

Scope gaps often stem from unclear inclusions and exclusions, incomplete responsibility mapping between owner, landlord and contractor, or subtle disconnects between drawings, specifications and budget assumptions.

These oversights rarely appear dramatic or even problematic at the outset. Instead, they tend to surface as concerns midstream, when mobilization is underway and leverage is limited.

In North America, it’s estimated that a whopping 98% of all construction projects face delays, with the average project duration extending 37% longer than originally projected (often due to scope gaps that could have been avoided).

Common examples of project scope gaps include:

• Base building versus tenant improvement demarcations
• Utility capacity assumptions
• Demolition extent
• Technology or low-voltage scope
• Responsibility for temporary services

Avoiding these concerns begins with rigorous scope alignment before pricing is finalized. Effective teams conduct structured scope reviews that reconcile architectural drawings, engineering documents and trade narratives line by line.

Additionally, responsibility matrices can clarify who owns each component (landlord, tenant or contractor) and eliminate overlap or omission.

Budget narratives should also explicitly document assumptions. When scope decisions are captured early and shared across stakeholders, downstream disputes decrease and cost exposure narrows.

2. Late Design Changes That Cascade Across Trades

A seemingly small design change during construction can produce outsized consequences.

For example: Shifting a wall impacts framing, drywall, electrical, fire protection and finishes. Modifying lighting layouts affects ceiling systems and coordination drawings. Changing flooring after procurement disrupts sequencing and labor allocation.

In dense commercial interiors, trades are also tightly interdependent. Late changes amplify rework and compress float, often driving acceleration costs.

Prevention hinges on disciplined decision timing. Decision deadlines should align with procurement and coordination milestones. Early constructability reviews identify conflicts before they migrate to the field. Finish selections, particularly long-lead items, should be confirmed during preconstruction rather than deferred to mobilization.

Contractors that incorporate trade partners into early coordination sessions often reduce redesign risk. Field realities (access constraints, tolerances, sequencing) inform smarter design decisions before installation begins.

When decision-making frameworks are established early, change orders decline and schedule stability improves.

3. Overlooked Site Logistics in Active Buildings

Many commercial fit-outs occur within occupied buildings. In these environments, logistics can dictate performance morethan labor productivity.

Elevator restrictions, limited staging space, noise limitations, after-hours work rules and neighboring tenant sensitivities reshape how construction unfolds. Projects that fail to integrate these constraints into early planning frequently experience delays unrelated to trade execution.

Successful fit-outs treat logistics as a primary planning variable, not a secondary consideration.

Pre-mobilization walkthroughs with building management clarify freight access, laydown areas, material delivery windows and protection requirements. Detailed logistics plans should address:

• Material flow paths
• Temporary protection measures
• Debris removal routes
• Work-hour limitations
• Security protocols

Sequencing may need to adjust to accommodate vertical transportation limitations or shared corridors. In high-rise environments, elevator scheduling alone can influence daily productivity.

When logistics planning occurs early (before schedules are finalized), contractors can more effectively reduce friction with property managers and neighboring tenants while maintaining progress.

4. Permit and Approval Delays on the Critical Path

Permitting is frequently underestimated in commercial interiors, particularly when projects appear straightforward.

Even minor scope modifications can trigger additional review cycles. Jurisdictional backlogs, incomplete submittals or unclear documentation extend timelines unexpectedly. In some municipalities, revisions restart review clocks entirely.

That’s why permitting should be treated as a schedule driver, rather than a parallel task.

Proactive teams engage jurisdictions early to clear up submission requirements and review expectations. Complete, coordinated drawing packages reduce comments and resubmissions. Realistic review durations (including potential revision cycles) should be incorporated into the master schedule.

Where applicable, phased permitting strategies may allow early construction activities while final reviews continue. Maintaining consistent communication with plan reviewers often accelerates resolution of comments.

When permitting assumptions are transparent and built into the schedule, projects avoid last-minute compression that strains labor and budgets.

5. Budget Creep From Dozens of Small Misses

Rarely does a single catastrophic decision derail a fit-out budget. More commonly, cost drift accumulates from dozens of minor misses.

Untracked allowances, underestimated quantities, overlooked coordination items and incremental scope shifts combine to produce budget overruns that surprise stakeholders late in the process.

Preventing this requires active cost management throughout design and construction. In other words, detailed early budgeting anchored in trade input improves accuracy. Regular cost check-ins (aligned with design development milestones) surface variance before it becomes entrenched. Transparent change management procedures make sure all scope adjustments are documented, priced and approved prior to execution.

In my experience, contractors that treat budgeting as a continuous discipline rather than a one-time event maintain clearer visibility into financial performance. When small cost deviations are addressed immediately, cumulative exposure is better controlled.

A Framework for Predictable Fit-Out Execution

Across these five pitfalls, a common theme has emerged: Most disruptions are preventable through disciplined preconstruction and structured coordination.

A field-tested framework for commercial interiors includes:

• Early scope alignment and responsibility mapping
• Structured constructability reviews
• Decision deadline tracking
• Detailed logistics planning for active environments
• Permitting integrated into baseline schedules
• Ongoing cost reconciliation throughout design

For nonresidential contractors and owners, predictability is often more valuable than speed. Clear assumptions, early coordination and transparent communication reduce friction and protect both relationships and margins.

In truth, commercial fit-outs rarely fail because of poor craftsmanship. They falter when planning gaps compound under schedule pressure.

As tenant demands grow and schedules tighten, there’s no margin for vague estimates. Projects that feel controlled in the field are almost always the result of disciplined planning long before the first wall is framed.

SEE ALSO: NEW SURVEY REVEALS THREE TRENDS RESHAPING MEP CONTRACTING

The post Five Common Pitfalls in Commercial Fit-Outs—and How to Avoid Them first appeared on Construction Executive.

Those loss scenarios could have been prevented with a comprehensive and effective water damage prevention plan (WDPP). This includes routine site inspections to identify uncontrolled water damage exposures and basic maintenance to make sure drains are clean of debris and divert them to a catch basin or low point away from the building. An effective WDPP plan also incorporates technology such as backflow preventers on sewer connections and water sensing technology to monitor the most vulnerable exposures.

Determine High-Risk Areas for Water Intrusion 

Although water can enter a building in many ways, there are several major areas that a contractor should pay attention to:

• The building envelope—roof, walls and floors
• Interior systems—piping for domestic water, hot water heaters, HVAC, water-sourced equipment, process liquids, sprinkler protection, and building equipment and appliances;
• Exterior exposures—surface water from improper landscaping, gutters, downspouts and weather-related hazards 

To prevent water damage on a construction project, contractors should consider providing instructions for proper maintenance and operation of the property. Consider this 15-point checklist:

1. Quality Control requirement for all trades
2. Verify weather‑tight building envelope
3. Protect unfinished openings daily
4. Inspect roof drainage systems
5. Confirm positive drainage and slope
6. Seal all penetrations and sleeves
7. Control temporary water sources
8. Inspect water‑bearing system installations
9. Use Inspect, Charge, Observe, Drain procedures
10. Protect vulnerable finishes and materials
11. Implement freeze protection measures
12. Maintain clear access to shutoffs and drains
13. Install early‑detection technology
14. Perform daily water‑risk walkdowns
15. Train workers on water awareness and response

Stronger Building Codes

Stronger building codes are another way to make sure property can withstand water intrusion and significantly reduce water damage, especially when it comes to how roofs are built. Without these requirements, many buildings are constructed without sealing the roof deck—the solid, flat surface that sits directly on top of the building’s frame and underneath the shingles or other roofing materials. Think of the roof deck as the “floor” of the roof and the shingles as the outer skin. If high winds tear off shingles and the roof deck is not sealed, rain can pour straight into the building. Sealing the roof deck adds a protective water barrier at a relatively low-cost during construction, but it can prevent extensive interior damage and save tens of thousands of dollars over the life of the building.

Storm-Hardening

While many existing buildings may not have been built to withstand water damage, owners can work with contractors to make them stronger so they can better stand up to severe weather and reduce the chance that wind or rain will cause serious damage or lead to costly water intrusion. For example, improving the framing inside a building can make a facility stronger and reduce the amount of potential damage during strong winds from a hurricane or tornado.

Building owners can also ensure that there is proper drainage during construction. Some structural areas to look at include building envelope evaluation, wall types, roof types, windows, doors, exterior drainage and landscaping. In addition, it is prudent to note the location of air handling units, water supply, critical electrical or mechanical equipment, and whether an emergency generator has enough capacity to deliver the necessary power for these essential items in the event of a power outage.

Using Technology as a Proactive Measure

Water sensors are an early detection system that can monitor buildings and alert property owners of water intrusion or leaks. This is particularly important if the building or facility has had a history of water damage because these kinds of devices can capture an issue before it becomes a major loss. The difference in damage costs from being able to quickly respond to a leak compared to not realizing something happened and letting hours go by is significant.

Partnering With an Experienced Insurer 

It is no secret in the insurance industry that water-damage claims are common. In some cases, they are one of the leading sources for commercial property loss. However, contractors help avoid losses if they identify risk areas early, prepare a water damage prevention plan and use technology to monitor and mitigate potential costly losses. 

SEE ALSO: WATER DAMAGE: CONSTRUCTION’S OFTEN UNNOTICED THREAT

The post Preventing Common and Costly Water Intrusion Events in Construction first appeared on Construction Executive.

It’s no wonder interest is rising: In an era of skilled-labor shortages, rising material prices, volatile climate risks and economic uncertainties, building all or part of project structures in a factory environment can provide increased efficiencies and quality control while reducing time and manpower needs on the jobsite.  

But these operational benefits bring their own set of risks—from structural damage during transport to new types of cyber vulnerabilities—that traditional construction and business insurance programs aren’t always designed to handle. Managing these unique exposures requires owners to evaluate modular-specific risk management strategies proactively.  

Five Risks and Coverage Areas for Modular Construction

While the end result of modular construction is the same—a new, functioning building—the path to get there is not, and neither is the footprint for risk. Manufactured building projects combine most or all of the typical risks of a traditional jobsite with those of a factory, plus the space that connects the two. 

Offsite work should not be an afterthought. To avoid coverage gaps, work with your broker to expand your insurance policies to ensure comprehensive coverage for modular construction. Areas to address include:

• Inland marine and transit exposures: Manufactured construction requires rigorous quality control—but it also exposes building modules to hazards as they move from the factory floor to the jobsite. Damaged components can derail project timelines. Insurance coverage must be seamless from the factory floor to final installation to cover potential losses or transit delays.
• Builders risk phasing: Most of modular construction is out of sight, but it can’t be out of mind. Insurance coverage should reflect the entirety of modular timelines, with coverage spanning off-site fabrication, storage and on-site assembly.
• Cyber security: Design and fabrication technology, including building information modeling platforms and IoT-enabled systems, creates additional cyber vulnerabilities, including IP and data protection risks. Consider your existing cyber insurance coverage limits to ensure they cover the additional tools and exposures.
• Wrap Ups/General Liability risks: Many projects, particularly larger and more complex projects, leverage the Wrap Up liability model to reduce insurance costs and improve coverage quality and continuity. Traditional Wrap Up programs however, typically provide coverage only within the defined borders of the project site. That may lead to coverage gaps for construction activities and work completed offsite, requiring your broker to appropriately modify the coverage terms of the Wrap Up policy.
• Workforce risks: Just as on the jobsite, modular factory workers face a range of health and safety risks, including strain from lifting materials, injuries from tools, and slips and falls. But the ergonomic stressors and equipment-related injuries on the manufacturing floor do differ in some areas from those of construction sites, and regulatory requirements are not uniform across these environments. By anticipating these differences and ensuring the offsite and field-based construction safety strategies are fully coordinated, companies can help lower injury rates and support compliance. In addition to adjusting how they implement and monitor safety, leaders also will need to work with their broker to alter or enhance coverage to accommodate the additional and varied risk.

Collaborate to Enhance Protection

Modular building presents a number of meaningful opportunities for construction firms to increase efficiencies, elevate quality, better manage cost and schedule, and bolster resilience. To be fully successful, firms must pair that operational innovation with thoughtful risk management, using strategies that cover the expanded risks arising from modular construction across planning, design, fabrication, delivery and installation. 

Whether you’re already active with manufactured projects or are just getting started, connect with your insurance broker early and often to update or enhance your policies to meet the unique needs and associated risks.

SEE ALSO: MODULAR CONSTRUCTION’S BIG BOOM: NEW RISKS OUTPACING STANDARD CONTRACTS IN INDUSTRIAL PROJECTS

The post Modular Construction Brings Ample Advantages—and Unique Risks first appeared on Construction Executive.

Addressing Particular Risks

An LOL can address a wide range of risks, including:

• Damages for delay
• Liability for non-conforming or defective work
• Liability for third-party bodily injury or property damage
• Liability excluded by a general liability policy (e.g., pollution and cyber liability)
• Liability related to intellectual property

Delay Damages

A mutual waiver of consequential damages is standard in construction contracts. This clause limits the contractor’s liability for, and the owner’s ability to recover for, owner’s lost rents, profits, etc. The risk of damages for delay is more frequently addressed through liquidated damages associated with late delivery. By establishing a liquidated amount, both owners and contractors can quantify and manage their risk. Any LOL clause in a contract that includes liquidated damages should expressly exclude liquidated damages from the LOL.

Damages for Non-Conforming or Defective Work

When defective or non-conforming work is discovered before acceptance, the owner can reject the work and, ultimately, terminate a contractor who does not correct the work. In that case, the LOL can be used to limit recovery against the contractor for costs of correction or even the cost to complete the work under the contract. Contractors should be prepared for owners to exclude liability for defective or non-conforming work or contractual liability for termination from an LOL.

After acceptance, the warranty is the primary method for addressing defective or non-conforming work. If an LOL is applied on top of a warranty, the contractor shields itself from liability beyond the LOL no matter how much damage defective work causes or how much it costs to correct.

Liability for Third-Party Bodily Injury/Property Damage

The standard approach in construction contracts is to place primary risk of liability for third-party property damage and bodily injury on contractors because they are in the best position to manage site safety and possess specific expertise required to mitigate these physical risks. Contractors are also in the best position to insure these risks. Including these risks within an LOL may protect a contractor from liability to the owner for the uninsured losses, but it will not protect the contractor from liability to third parties. It may also have the unintended consequence of relieving an insurer of its obligation to cover the owner for otherwise covered losses.

Because the contractor typically indemnifies (and agrees to defend) the owner for third-party bodily injury and property damage, and the contractor insures this obligation with its general liability policies, the indemnification obligation for third-party bodily injury and property damage is typically carved out of an LOL. A clause clarifying that the LOL is not intended to relieve the insurer of its obligations to provide coverage is also typical. 

Liability Excluded From General Liability Policy

Some third-party liability is not covered by a standard general liability policy. Primary examples of this are the standard exclusions for pollution and cyber liability. A standard general liability policy excludes liability for “pollution,” which is defined broadly to include “smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” These are common risks from a contractor’s operations. Similarly, standard general liability policies exclude damages “arising out of the loss of, loss of use of, damage to, corruption of, inability to manipulate electronic data.”

As the proliferation of AI continues, and the construction industry embraces new technologies, the risk of bodily injury and property damage as a result of cyber attacks on operational technologies is increasing. For example, there was a notorious incident in 2008 in Lodz, Poland, in which a teenager hacked into the tram system and caused four trams to derail. As vehicle systems incorporate technology connected to the internet, they become vulnerable to cyber attacks that may result in injuries to third parties.

Attention should be given to such risks, and they should be consciously addressed through the contract. If an LOL is included, the best practice is for the contractor to insure those risks, indemnify the owner for those risks, and to carve out the indemnification from the LOL.

Intellectual Property Liability

It is common for suppliers of products to indemnify buyers against liability for third-party claims that the products infringe on intellectual property rights, such as patents, copyrights or trademarks. Such indemnifications are also common in construction contracts. When negotiating an LOL, care must be taken to apportion the risk of IP claims through negotiated carve-outs to the LOL clause.

Settling the Value of the Limitation

In many cases from other industries, particularly professional service contracts, the initial proposal for an LOL clause limits damages to the amount of fees paid under the contract. This is frequently rejected. Negotiations may result in some language tied to “available insurance” or “the limits of available insurance.” Many of these negotiated clauses are inherently ambiguous because they could be interpreted in multiple ways (e.g., to apply only to amounts actually paid by an insurer versus to apply to amounts that should be covered under a standard general liability policy).

Using insurance policies as a measure of the LOL creates a risk of disappointing the expectations of the parties because many variables could impact whether insurance actually covers the losses. For example, insurance policies may not pay claims because the limits have been exhausted in the payment of other claims unrelated to the contract or because the insurance policies are written on a non-standard form including unexpected exclusions impacting the amounts payable (e.g., exclusion for work at heights).

Given all of the variables that might come into play in securing insurance coverage, establishing a particular dollar amount as the LOL creates the most certainty for both parties. The limits of insurance required by the contract, however, can provide a useful measure to establish the value of the LOL.

When proposing an LOL, the contractor should focus on the particular risks it wants to limit and make certain that the LOL is drafted in such a way that it does not have unintended consequences with respect to insurance coverages and other obligations. Careful drafting of an LOL can limit a contractor’s exposure to many risks. While a sophisticated owner will not accept a blanket LOL with a small cap, a contractor can limit some financial exposure through a well-crafted LOL.

SEE ALSO: A CYBERSECURITY PRIMER FOR CONTRACTORS: THREATS, LIABILITY AND INSURANCE

The post Limitations of Liability Provisions in Construction Contracts: A Means to Manage Risk and Limit Financial Exposure first appeared on Construction Executive.

Survey respondents included construction and engineering risk experts who identified the threats keeping them up at night. Here is how they ranked the top industry risks for 2026:

Natural Catastrophes

Natural catastrophe risk retains the top spot, with 38% of construction and engineering respondents citing this risk as their leading concern for 2026. From the insurance perspective, economic and insured losses remained high, albeit lower than the 10-year average. The evolving nature of natural catastrophes continues to pose significant challenges to businesses and the (re)insurance industry. Insured losses from natural catastrophes are set to reach $107 billion for 2025, according to Swiss Re—the sixth year in a row they have exceeded $100 billion, while economic losses are well in excess of $200 billion.

While the Gulf Coast experienced a relatively quiet hurricane season in 2025, with fewer major storms making landfall than in recent years, concerns about natural catastrophe risk remain acute. The reduced hurricane activity provided some respite to coastal communities and the insurance industry, but the broader landscape of natural disasters continued to pose significant challenges.

Notably, SCS—severe convective storm—events, including hail, damaging winds and tornadoes, saw a marked increase in frequency and severity across the central and eastern United States. These storms often result in substantial property damage, business interruption and insured losses, rivaling or even exceeding the impacts of hurricanes in certain regions.

The rise in SCS activity underscores the need for continued vigilance and adaptive risk management strategies. It is a reminder that even when one peril appears to subside, others can surge, shifting the risk profile for companies and insurers alike. Stakeholders must remain proactive in monitoring evolving weather patterns, investing in resilient infrastructure and updating catastrophe models to reflect these dynamic threats.

Climate Change

Jumping from fourth to second place for construction and engineering risk experts this year is climate change, which includes physical, operational and financial risks associated with extreme weather. 2025 marked yet another year of record global losses and growing climate risk. The year’s standout event was the California wildfires in January, which took place outside the traditional fire season and spread quickly in urban areas, incurring insured losses of $40 billion, according to Swiss Re.

Climate change is increasingly recognized as a driving force behind more frequent and severe weather events, such as SCS, wildfires and flooding. These phenomena not only pose significant challenges at the local level but also have far-reaching effects on global supply chains. In the context of the U.S., this issue has become especially relevant due to the substantial procurement of equipment required for data center and power generation projects.

For local economies, climate-related disasters strain emergency response systems and damage infrastructure, including roads, utilities and buildings. Data center and power generation projects can experience delays in construction, increases in costs and threats to operational continuity.

Extreme weather events and environmental changes abroad can affect the production and transportation of key components and materials needed for U.S. projects. For example, flooding in Southeast Asia, droughts in South America or wildfires in Australia can disrupt mining operations, manufacturing plants and logistics networks. The complexity and interconnectedness of modern supply chains mean that a single event in one part of the world can have cascading effects on project timelines and budgets in the U.S.

The U.S. is undertaking significant investments in new data centers and power generation facilities to meet the demands of a digital economy and a growing population. These projects rely heavily on a steady and reliable supply of specialized equipment, much of which is sourced from global suppliers. As climate change continues to disrupt local and international supply chains, project managers and procurement teams face heightened risks and uncertainty.

To mitigate these risks, many organizations are reevaluating their sourcing strategies, increasing inventory buffers, diversifying suppliers and investing in more resilient infrastructure. Additionally, there is a growing emphasis on sustainability and climate adaptation measures to ensure long-term viability and minimize vulnerability to future disruptions.

Fires and Explosion

Fire and explosion risk once again takes the third spot in the Risk Barometer rankings with 25% of construction companies citing it as a top concern. Few things can be more destructive for a business than a fire. Not only can it cause costly damage, but a fire can also interrupt a firm’s operations indefinitely. Fire remains a significant cause of business interruption and supply-chain disruption, especially where critical components or equipment are concentrated geographically or are among a small number of suppliers.

Allianz Commercial analysis of more than 1,000 business interruption insurance industry claims over a five-year period ending in 2023 (with a value in excess of US$1.3 billion), shows fire is the most frequent driver of these claims and accounts for over a third of the entire value (36%). The degree of disruption can be very high, as it can take longer to recover from than many other perils, and the impact on suppliers can often be great.

Fire has also become an elevated risk with electrification and the growing prevalence of lithium-ion batteries. Inadequate handling, storage or transportation of these batteries has been linked to an increasing number of fire incidents on land and at sea in recent years. Regularly assessing and updating prudent fire mitigation practices, including preventive measures, fire extinguishing methods and contingency planning remain essential for all businesses to lower the risk of loss from any incident.

Modern data centers are integrating batteries at unprecedented rates, primarily for backup power and energy storage in uninterruptible power supply systems. The widespread adoption of lithium-ion batteries, in particular, has raised the risk of thermal runaway events, which can quickly escalate into fires. The compact nature and high energy density of these batteries mean that even a minor defect or malfunction can lead to rapid ignition and propagation of fire throughout a facility.

As global demand for cloud computing, artificial intelligence and big data analytics continues to surge, data centers are scaling up both the number and density of servers. High server utilization leads to increased heat generation, placing greater stress on cooling systems and electrical infrastructure. Overloaded circuits, equipment malfunctions and overheating components can all serve as ignition sources, further amplifying the risk of fire incidents within these critical facilities.

To meet the substantial energy demands of data centers, power plants are increasingly deploying gas turbines as a reliable and flexible source of electricity. However, gas turbines operate at high temperatures and pressures and utilize flammable fuels, making them inherently susceptible to fire and explosion hazards. Leaks, equipment failures or operational errors can result in catastrophic incidents, affecting not only the power plant but also the data centers they support.

Given these converging factors, fire and explosion risk management remains a top priority for construction and engineering professionals. Comprehensive fire detection and suppression systems, rigorous maintenance protocols, regular safety audits and advanced monitoring technologies are essential strategies in mitigating these risks. Collaborative efforts between engineers, facility managers and safety experts are critical to ensuring operational continuity and the protection of assets, personnel and the environment.

To read the full report, please visit: 2026 Allianz Risk Barometer

SEE ALSO: REPRICING RISK: HOW INFLATION AND TARIFFS ARE RESHAPING CONSTRUCTION INSURANCE

The post 2026 Top Business Risks for Construction and Engineering Companies first appeared on Construction Executive.

Finances will continue to be pressured by trends like volatile material supplies and costs (up 34% since 2020) and the chronic labor shortage, aggravated by immigration enforcement. But, in addition to declining interest rates, positive business trends like accelerating investment by private equity and a booming market in data center construction should help those that can manage the underlying risks. 

In this volatile environment, effective risk transfer solutions have never been more important,  and the continued rise in rates for traditional lines like commercial auto and excess/umbrella liability are another pressure on business margins. Even so, relief’s available as creative risk-sharing solutions gain traction.

A Volatile Environment With Some Positive Spots

The volatility that should carry into 2026 complicates the management of a successful construction firm. It’s not just that profitability is pressured. Think about the challenges of managing the dramatic shifts in insurance valuations and project financing that can happen between bid and completion.

Material shortages and cost are a big damper on the outlook. A whopping 92% of North American business leaders responding to HUB’s 2026 Profitability and Resilience Survey said rising costs will impact their profitability in 2026. The worker shortage is another concern. One-third of construction firms have been affected by immigration enforcement actions this year, and 45% say worker shortages have delayed projects. 

Stabilizing interest rates, though, are a positive and are likely to restart stalled projects and reopen the path to homeownership. Also on the plus side, in addition to the data center boom, is the burgeoning interest in construction firms by private equity investors. The downside to their capital infusions, though, are different expectations for performance; meeting them will require guidance from experienced brokers to align risk management and insurance with investor priorities.

Alternative Risk Transfer Solutions Meet Needs of the Times

The rocky business landscape for 2026 makes it more essential than ever for construction management to tap into the risk transfer options that protect them more effectively. Ongoing losses are projected to push rates up for commercial auto and excess/umbrella liability by as much as 15%. In 2026, it will drive the search to manage exposures and fill gaps in coverage, while continuing to satisfy lender requirements. 

Some important areas of focus in the new year include:

• Improved management of extreme weather impacts. Wildfires, severe storms and tornadoes, extreme heat and other weather events are only getting worse. Fourteen separate billion dollar disasters occurred in 2025’s first half, and there’s a 93% chance that the end of 2026 will mark the hottest five-year period on record. It costs construction businesses—up to 50% of firms pay the price in project delays and expanded timelines. 

It is imperative for firms to have the right tools to anticipate and guard against related business interruption. Advanced weather analytics and modeling, for example, are key to identify vulnerabilities and adjust project timelines accordingly. Knowledgeable insurance brokers also can utilize predictive planning to structure coverage around regional weather patterns and variations. Parametric insurance is a valuable supplement to traditional insurance for uncovered risks, paying out once a specified weather metric is met.

• The complexities of data center projects. About $1 trillion of the $7 trillion global investment in data center infrastructure by 2030 will go toward buildings. But these are hardly simple warehouse construction projects. They are highly complex industrial projects that must continuously expand to meet evolving demands for energy and computing power. 

Challenges are compounded by the need for skilled labor, electrical systems and physical security, all of which require highly specialized trades and design-build expertise.

A specialized insurance program is another aspect of the challenge. To manage exposures and provide adequate capacity, coverage must be spread across multiple insurance markets, requiring expertise in both construction and power infrastructure. Builders risk insurance remains critical, but underwriters are scrutinizing cyber liability and equipment breakdown exposure for these projects as well. 

• Enterprise risk management has heightened role. Today’s environment of mounting and disparate risks makes the case for an enterprise risk management strategy. This involves taking a holistic view of organization-wide risks, proactively managing them and the opportunities that may be within them, and improving resilience and business continuity in the process. 

An experienced broker is a valuable partner in developing the strategy, offering insights into where better risk mitigation can reduce losses. Construction firms and their risk managers can also benefit from scenarios that lay out business interruptions like labor shortages or material disruptions and what additional insurances coverages could serve as guardrails.

SEE ALSO: NAVIGATING THE CHALLENGES OF A 2026 SURETY MARKET

The post How Construction’s Risks, Opportunities and Insurance Options Shape up for 2026 first appeared on Construction Executive.

Matt Donovan
Regional Vice President, Contract Surety
Nationwide

Contract surety underwriting relies on a disciplined financial analysis framework that helps underwriters evaluate a contractor’s ability to complete bonded projects reliably and profitably. To gauge both financial and operational strength, underwriters focus on core metrics that reveal liquidity, leverage, profitability, and workload management—each essential to assessing risk and setting appropriate bond programs. Liquidity remains a foundational measure. Underwriters rely heavily on the current ratio and analyzed working capital to determine whether a contractor can sustain project cash demands and absorb disruptions. Strong liquidity supports short-term performance and directly influences a surety’s willingness to extend or expand single and aggregate bond limits.

Profitability metrics provide insight into operational discipline. Gross and net profit margins and return on equity help underwriters determine whether a contractor’s estimating, project management, and cost control practices are producing consistent and reliable results. Contractors with stable margins tend to demonstrate greater predictability and a lower risk of job-related losses. Sureties diligently review margin trends across multiple work-in-progress schedules to evaluate bidding accuracy, cost controls, and overall execution capability. Underwriters also evaluate leverage, most commonly through debt to equity ratios, to assess long term financial stability and vulnerability to economic shifts. Conservative leverage levels indicate a contractor with borrowing capacity & financial resilience during downturns.

These metrics, combined with regular backlog analysis & growth forecasts, as well as other analysis of trends help underwriters determine whether a contractor’s workload is appropriately sized relative to its financial base and serve as indicators of project level risk and management effectiveness. These metrics enable underwriters to make well-informed, responsible bonding decisions.

How does a contractor’s existing workforce and recruitment, training and retention programs impact its ability to obtain bonding?

Tina Hawkins
Vice President, National E&C Deputy Group Leader
Chubb

A contractor’s workforce is a primary indicator of its capacity to perform, and performance is fundamental to securing and maintaining surety bonding. Sureties evaluate not only financial strength, but also the operational infrastructure that supports consistent project execution. An established, experienced workforce signals that a contractor possesses the in-house resources necessary to pursue, manage, and successfully complete work.

Structured recruitment, hiring, and training programs demonstrate intentional investment in talent. In today’s market, skilled labor shortages remain a significant issue. Contractors that prioritize high-quality training and retention create a foundation for the successful execution and delivery of their backlog. Proven expertise, unified project controls, and a “One Team” approach directly influence profitability and reduce project completion risk. These factors reinforce the surety provider’s confidence in the contractor’s ability to grow in a deliberate and controlled manner.

The retention of senior leadership and experienced field personnel further reflects stability at all levels of the organization. These actions help to build trust with both the contractor’s surety provider and their customers. Sureties closely evaluate the character of a contractor, including its leadership, core values, and succession planning. Continuity from within strengthens long-term operational performance and supports the responsible expansion of job size and program growth.

Ultimately, a strong and established workforce translates to sustained performance. Consistent results, an aligned culture, and disciplined growth enhance a contractor’s reputation and financial profile. These qualities all lead to stronger surety support and the ability to secure and maintain bonding capacity.

Can regular communications with surety providers help construction firms access larger bonding capacity and more favorable terms?

Jason Dettbarn
Senior Vice President-National Contract Surety Leader
Merchants Bonding Company

Yes, when it’s strategic.

Contractors ready to grow often face the same challenge. You’re prepared to pursue larger projects, but your ability to compete depends on your bonding capacity. Capacity doesn’t expand with ambition alone, though. It expands when confidence is built through communication.

Some firms only contact their surety when financial statements are due or a bond is urgently needed. That reactive approach means underwriters have to make decisions with limited context, which can result in conservative limits or tighter terms. So, growth gets constrained not by capability, but by uncertainty.

The more proactive path? Viewing your surety as your risk partner and trusted guide, working with them to prepare for your pursuit of larger work. That kind of preparation is more than simply sharing financials; it’s discussing pipelines, target project size, hiring plans, equipment investments, and capital strategy. It’s about identifying potential hurdles like working capital strain, geographic expansion, or margin compression.

These early and transparent conversations can reduce uncertainty and increase flexibility. Consistent contact establishes credibility which, over time, can support higher single job limits, larger aggregate programs, and more favorable terms for you.

Bonding capacity is built on trust. Contractors who communicate proactively and treat bonding as an intentional part of their growth strategy are the ones who build it.

Paul Kennedy
Vice President, Contract Surety
IAT Surety, a division of IAT Insurance Group

The short answer is yes. I’m a firm believer that working with agents and brokers who actively facilitate communication with the surety is critical to long-term success. A surety’s role is to understand, as thoroughly as possible, how a contractor operates. That includes everything from people management and cost controls to project selection, risk tolerance, and overall decision-making.

The more insight a surety has into how a contractor approaches its business – and what drives its risk decisions – the easier it becomes to offer meaningful support and increased capacity. Operating in a vacuum doesn’t benefit either party. Open dialogue provides the context needed to evaluate opportunities effectively.

This is especially important when a contractor pursues larger projects or enters new markets. When a surety understands the thought process behind those moves, it builds confidence and makes it easier to support those opportunities.

Equally important is a contractor’s willingness to discuss challenges. Construction is inherently risky, and issues are inevitable. Sureties understand this. What matters most is transparency – being upfront about problems, outlining corrective actions, and showing how similar issues will be prevented. That level of honesty builds trust.

Communication goes both ways. The strongest relationships are collaborative. Contractors who tap into the experience a surety brings – gained from working with many clients – gain valuable perspective. At its best, that shared insight helps contractors make informed decisions and positions both parties for long-term success.

What should contractors know about the three Cs (character, capacity and capital) used to evaluate contractors for surety capacity?

Meghan McArdle
Vice President, Contract Surety
Arch Insurance Group Inc.

The three Cs—Character, Capacity and Capital—comprise the core framework underwriters use to extend credit and evaluate bonding qualifications. A good surety relationship is based on trust and the belief that all parties will honor their obligations. Trust is built through face-to-face meetings, regular communication, and timely and reliable financial reporting. Providing timely financial statements and work-in-progress schedules that reflect financial stability and operational abilities demonstrates a commitment to transparency. Accurate financial reporting establishes your capital base.

Capacity is derived from proven operational capabilities and project performance over time. Capacity can often be expanded if key underwriting concerns like owner selection, project management abilities, and sub-contractor risk are reviewed and positively evaluated.

While each characteristic is fundamentally important, it’s imperative to understand that each “C” isn’t created equal. You need to take a holistic approach to comprehending their application. Character is first because without it, the assessment of Capacity and Capital are secondary. In many instances strong character can offset a thin capital base or capacity push. Measurable financial benchmarks can be established to increase capital over time to meet capacity requirements. Capital and capacity can also expand with the right long-term strategic plan. However, a strong capital base and positive job performance cannot overcome questionable character traits. Sureties will be more inclined to increase capacity when there is a history of financial stability, operational dependability, and adequate risk mitigation, along with open communication. All are tools contractors can use to build trust and establish a strong bonding relationship.

How does an owner exiting a construction business impact the amount of bonding capacity that a surety is willing to extend?

Henry W. Nozko Jr.
President
ACSTAR Insurance Company

An owner exiting from a construction business could have an effect on the amount of bonding capacity its surety will extend.  The consequence will range from little to no effect, to a major ramification including a potential withdrawal of support by the surety.  Let’s assume the existing owner is an indemnitor and will no longer provide personal indemnification to the surety.  Let’s also assume the exiting owner is one of several owners and the exiting owner does not have an active role in operating the company, and the exiting owner is not a significant source of financial support as an indemnitor.  Additionally, the buyout of the exiting owner is not funded by the Company.  This situation would likely have little or no effect to the bonding program provided by the surety.

However, a more transformative situation could have a much greater impact on the surety program.  Assume the exiting owner is the major shareholder and the major operating manager of the company, and will no longer act in that role.  Assume the company will be purchasing and financing the ownership shares held by the exiting owner.  This type of arrangement most likely will impact the surety program significantly.  The program size might be reduced.  The program cost might by increased.  Other, less desirable underwriting terms may be applied by the surety and possibly the surety program could be withdrawn.

There are of course many variations of the above examples.  It is best to advise your surety of a pending ownership change prior to closing.  At a minimum, the surety will appreciate the heads-up and might offer minor tweaks to the transaction that could be beneficial to the resulting surety program.  Circumventing advance disclosure will, at a minimum, be less enthusiastically received by,and strain the relationship with the surety, upon its discovery of the event. 

How does an owner exiting a construction business impact the amount of bonding capacity that a surety is willing to extend?

Brock Masterson
COO—Surety Division
Crum & Forster

Personal relationships are key to strong, lasting surety partnerships between the surety, contractor, and agent. An owner’s departure can disrupt the status quo, so the surety must assess the contractor’s expertise and leadership to maintain stable capacity. The contractor will also need to maintain sufficient financial strength to continue to qualify for surety credit, which will require thoughtful financial planning tied to any sale of ownership. These material underwriting items require strategic review and communication between all parties to ensure there is no interruption in surety capacity.

It will be important for the surety to understand how management and culture of the company will be perpetuated with new leaders. Is there a long-time employee who has been groomed for an executive role, or will it be necessary to hire externally? Does the company have a formal continuity plan? Building formal plans for management perpetuation will allow for continued surety support.

Relatedly, how will the owner’s departure impact the company financially? Is there a formal buy/sell agreement in place that allows for equity to be repurchased over time or financed via life insurance? Proper planning will allow the contractor to maintain the necessary capital and liquidity needed to properly manage their business with limited reliance on outside financing that could impair the company in the event of operational stress.

By regularly discussing these strategic decisions with the agent and surety, contractors can ensure they retain a stable surety program during an ownership change.

SEE ALSO: PROVE IT: WHAT SURETY UNDERWRITERS SEEK IN CONTRACTORS

The post Executive Insights 2026: Leaders in Surety Bonding and Insurance first appeared on Construction Executive.

The work itself hasn’t changed much—contractors and subcontractors are still building—but every part of the process now costs more. In 2025, construction input costs climbed another 4.4% for nonresidential projects, while tariffs on imported materials could added an additional 9% to overall project budgets. For insurers, that means a claim can cost 20-30% more to settle in 2026 (plus any tariff effects), and policy pricing must anticipate the total escalation.

At the same time, these economic forces have accelerated and fueled record data center construction spending. Cooling systems, power infrastructure and automation equipment push total build costs into the tens of billions, raising not only insured values but also the potential for business-interruption losses once those facilities are operational.

As insurers adjust for this volatility and market change, they’re pricing uncertainty into every policy. Premiums, deductibles and coverage terms are reflecting higher unpredictability in higher costs. For contractors, the cost of risk is being felt in tighter underwriting, rising insured values and greater scrutiny at renewal. Those who can demonstrate control over costs, safety and transparency are best positioned to keep coverage affordable.

SEVEN WAYS CONTRACTORS CAN CONTROL THE COST OF RISK

Inflation and tariffs may be outside of a contractor’s control, but risk management isn’t. In a market where volatility itself drives pricing, the most effective way to keep coverage affordable is to make your risk more predictable. That starts with clarity: clear contracts, consistent safety practices, transparent project data and open communication with insurers.

1. Strengthen contract language.

Contracts remain one of the most powerful tools for managing risk. When material costs or tariffs fluctuate, who bears that burden should be clear. Escalation clauses or “cost-plus” structures can protect margins when steel or concrete prices jump mid-project. Some contractors are shifting to owner-purchased materials to remove that volatility from their books entirely. On long-duration jobs—say, a two-year data-center build—aligning insurance coverage with contract terms around delays and material sourcing can prevent costly disputes later.

2. Plan for supply-chain uncertainty.

Tariffs have encouraged more domestic sourcing, but that doesn’t eliminate the risk of disruption. For example, a contractor relying on a single regional supplier for switchgear or HVAC units could face weeks of downtime if that vendor can’t deliver. Evaluate whether supply contracts guarantee price and delivery consistency across the full project timeline. For high-value equipment, consider security measures or staggered delivery schedules to reduce theft exposure. Insurers view these proactive steps as signs of control, and that can mean better pricing.

3. Understand your exposures at every phase.

Every project carries a shifting set of risks. Underwriters price coverage based on how well a contractor anticipates and mitigates those variables. Builder’s risk coverage is a prime example. Before the roof goes on or the sprinkler system is active, a project is far more vulnerable to water or fire damage. High-value materials stored on site can also become theft targets, especially as replacement costs rise with inflation. Demonstrating preventive measures—such as temporary detection systems, controlled site access or layered security—shows insurers that you understand where the project is most vulnerable and how you’re managing it.

4. Build a safety-driven culture.

Underwriters consistently link jobsite safety to loss performance. Research supports this strong relationship between a company’s safety culture and its onsite performance. Projects that can demonstrate measurable safety engagement often see fewer incidents and lower claims frequency, which directly stabilizes premiums. One general contractor recently introduced a “stretch and safety” protocol before every shift—simple, but effective in reducing soft-tissue injuries and signaling a culture of accountability.

5. Use technology to your advantage.

Digital tools are becoming an equalizer. Jobsite sensors can detect temperature spikes or humidity before materials are damaged. Telematics systems track vehicle use and driver behavior, reducing fleet-related claims. Even basic project-management platforms can help identify trends—like recurring delays with specific subcontractors—that raise exposure. Insurers are using similar data-driven tools, including AI models that scan reports and loss histories to better understand risk. Contractors who can demonstrate that same level of insight—showing how they collect, track and act on data to manage safety or cost—are better positioned to earn an underwriter’s confidence and negotiate more competitive terms.

6. Strengthen cyber readiness.

Connected jobsites have transformed how construction gets done, but they’ve also created a new class of exposure. Every tablet, sensor and project-management app is a potential entry point for a cyberattack. Underwriters are watching this closely. Many are now factoring cyber preparedness into overall risk selection and pricing, because digital disruption can be just as costly as physical damage. Firms that can show a proactive stance—clear data-security protocols, network segmentation for field devices and mandatory cyber coverage for subcontractors—signal that they understand how interconnected their exposures really are.

7. Don’t skimp on project management and inspection.

Large, complex projects bring together dozens of experts and subcontractors. The more layers of oversight you can maintain, the more confident insurers are in your ability to manage risk. Underwriters pay close attention to how well critical systems like electrical, mechanical and fire suppression are reviewed and documented. Many insurers even use AI tools to review engineering and inspection data for red flags, so detailed documentation now works directly in your favor. 

YOUR INSURANCE PARTNER MATTERS MORE THAN YOUR PREMIUM

The right insurance partner can make the biggest difference in how well your business absorbs uncertainty. When materials, labor and tariffs fluctuate, you need an insurer with staying power and construction-specific expertise—not just capacity.

Claims handling should come first, not price. Complex losses can take years to resolve, so look for carriers with in-house adjusters and risk engineers who understand how projects are built, not just how they’re insured. Financial strength matters, too; your insurer should still be there when the last claim is settled.

Finally, keep the relationship open. Let insurers walk jobsites, share safety data and recommend improvements. Those inspections aren’t just audits—they’re opportunities to prevent small losses before they become big ones. Contractors who treat their insurer as a partner in risk control, not a line item, often see it reflected where it counts most: in a lower total cost of risk.

SEE ALSO: HIGH-RISK CONSTRUCTION PROJECTS DEMAND SPECIALIZED INSURANCE

The post Repricing Risk: How Inflation and Tariffs Are Reshaping Construction Insurance first appeared on Construction Executive.

From bridges and tunnels to high-rise homes in coastal areas, more construction projects are falling into a high-risk profile. As economic, political and environmental indicators push these projects beyond traditional insurance options, wholesale casualty coverage offers the right security to get contracts approved and shovels in the ground.

High-Risk Construction Gets More Complex

Casualty insurers must underwrite increasingly volatile risks, often in high-hazard sectors like skyscraper construction, coastal development and infrastructure megaprojects. This high-stakes, high-complexity environment is expected to grow as regulations increase and volatility in the construction space continues.

Economic Uncertainty

The past five years have kept the construction industry on its toes and reshaped risk profiles, with governmental and economic changes putting current and future construction projects on shaky ground.

According to The Hartford’s Global Insights Center, U.S.-imposed tariffs on materials like steel and aluminum are now at 50%, and additional tariffs are in flux, making it difficult to meet budgets and scope future projects. Planning alone can take years before even breaking ground, and once a job starts, any shift in material or labor costs can increase premiums and undermine budget forecasts.

With all the uncertainty surrounding the future cost of goods and labor, many developers are hesitant to start jobs or take on a significant pipeline of work. Having to account for higher costs midway during construction can result in funding problems as well as quality issues.

Environmental Impacts

In recent years, identification of construction deficiencies in coastal areas has led to heightened risk assessments. Weather-related disasters, like hurricane season on the eastern seaboard and wildfires in the west, have also compounded the state of complex construction. The concern is not only the structures under construction but surrounding structures as well—especially those built more than 20 years ago. For example, in places like Florida, there is significant demand for high-rise residential buildings in areas with challenging soil conditions.

Effective underwriting requires much more scrutiny of adherence to building codes and best practices. Value-added risk engineering services can help developers ensure they are utilizing means, methods and materials that reduce their risk.

Litigation Trends

Construction sites are inherently risky and subject to lawsuits, a challenge in an increasingly litigious society. Monetary awards are climbing and even smaller awards are adding up, increasing risk and putting pressure on the cost of insurance policies. Legal system abuse is also driving costs through the roof with litigation financing becoming a multibillion-dollar business. It’s evident in the amount of aggressive attorney advertising that’s popping up in markets across the country.

Exceptionally high jury awards, known as nuclear verdicts, have become more frequent and severe. In addition, loss costs are rising and growing at a pace exceeding inflation. In addition, the increases in loss costs have resulted in a more challenging market for acquiring funding and insurance as carriers contemplate potentially large losses.

Furthermore, with the cost of everything, including materials and labor, much higher today than it was three or five years ago, the cost to fix or replace defects in construction has also increased as a result.

Wholesale Excess Casualty Meets Demands

Wholesale insurance is a much-needed solution for the complexity of modern-day construction risks. Without adequate limits, contractors can’t even step onto a jobsite. The ability to acquire coverage, especially in geographically challenging venues like Florida or New York, can make or break a project.

Managing Volatility With Specialization

Insurers who specialize in E&S, or excess and surplus, lines typically employ staff with decades of insurance experience and deep expertise in a designated field. Guided by internal data, actuarial insights and claims collaboration, underwriters can stay ahead of loss trends and refine appetite in the high-risk construction space.

Staying Agile in Coverage Creation

The flexibility of non-admitted coverage to craft tailored solutions for wrap-ups, project-specific placements and distressed accounts is one of the greatest strengths of the E&S market. Underwriters have the freedom to refine pricing models and coverage terms and examine historical claims data and emerging trends to offer policies that meet coverage needs while safeguarding against rising claims.

Utilizing Best Practices to Manage Risk

Claims severity is rising, especially in bodily injury claims. There are many contributing factors to this, including social and economic inflation and legal system abuse. Treating injuries has become more expensive, and even minor injury settlements are finding their way into excess layers. This can be troubling in jurisdictions that apply strict liability, where contractors may be held responsible for injuries regardless of fault,under local labor laws. Contractors who employ active safety teams on a jobsite are better able to mitigate risks.

Broker Collaboration

With carriers pulling back on capacity, especially on tougher risks, brokers who bring well-structured submissions early in the process are more likely to secure the coverage their customers need in today’s constrained market.When brokers understand the risk and communicate early, it builds confidence and that’s how capacity is unlocked in a constrained environment. Experienced carriers can leverage historical knowledge, identify future trends and focus on what high-risk projects need to satisfy insurance coverage demands.

SEE ALSO: WHY SELF-INSURANCE MIGHT BE WORTH IT IN A CHANGING CONSTRUCTION MARKET

The post High-Risk Construction Projects Demand Specialized Insurance first appeared on Construction Executive.