CRC: Smaller builders risk projects being placed with fewer markets as MGAs increase capacity

By Mia MacGregor

March 31 - (The Insurer) – Property capacity is now ample in the builders risk sector, a contrast to recent years, a new report from CRC Group has said.

The multifamily construction boom has cooled in some areas following a post-pandemic surge, leading to increased competition for projects.

For both coastal and noncoastal risks, frame capacity is abundant, bolstered by new market entrants. This is putting pressure on rates and increasing line sizes, with terms and conditions also improving, CRC noted.

“Single peril carveouts are less likely to be required, and deductible buybacks are easily accomplished. However, high-hazard flood exposures can remain challenging as some of the traditional MGAs are unwilling or unable to provide coverage,” the report said.

MGAs are increasing their treaty holdings, and new market entrants are offering fresh capacity.

“Frame non-cat builders risk rates continue to decline, and the market is agreeable to reducing water damage deductibles,” the report said.

“In summary, terms, conditions, and deductibles are improving. With MGAs having more capacity, smaller projects ($30 million and below) can be placed with one market versus two to six markets in previous years, driving down pricing and improving terms and conditions,” it continued.

Depending on the region, some MGAs have $50 million to $150 million of capacity and can take on 100% of a project.

CRC highlighted that its Insurisk Builders Risk + product offers AM Best A-minus or better-rated capacity for construction risks, providing up to $100 million for noncombustible construction and $50 million for wood frame projects, including $25 million for high-hazard natural catastrophe perils.

“Projects where it is required to insure an existing building along with the portion undergoing structural renovations are still challenging, especially if the building is a landmark or older building (those with existing damage),” the report said.

In addition, structural and non-structural renovation projects continue to enter the E&S market more frequently.

“Many standard markets will not extend the project if there are delays, causing sticker shock for the insured,” the report said.

CRC expects frame cat builders risk to continue to “maintain a level of firmness” because of the recent wildfire losses, active hurricane season, and sizable frame habitational fires that continue to occur.

CARRIERS TO ENTRENCH WILDFIRE POSITIONS

CRC made the comments on builders risk in a wider state of the market report on property.

The wholesaler broker said that the 2024 Atlantic hurricane season marked the ninth consecutive above-average season for the Atlantic basin. However, CRC said that the “vibrant” E&S property marketplace has not been heavily impacted.

“While the California wildfires may not have a vast rating impact on the marketplace, carriers will further entrench their wildfire coverage positions around rates, limits, and deductible structures for the exposure.

“Prices and rates will not decrease and should remain relatively flat. Insurers may also reduce line sizes and expand capacity in the second half of 2025,” the report said.

In the earthquake market, the report noted a general improvement in conditions that began in early 2024. Carriers are expanding available limits and reducing the number of carriers required on large, shared and layered deals. Most risks are now experiencing improved terms and conditions, including rate decreases in the single- to double-digit range.

CRC also reported that the energy property market remains stable with abundant capacity. In the flood market, capacity for high-risk zones or areas with prior flood history will remain limited.

In the habitational property market, conditions began hardening early but have already started to soften. Most habitational risks placed in the E&S market, whether in CAT-exposed areas or not, are now experiencing rate reductions ranging from 7.5% to 40%, according to the report.

CRC highlighted that severe convective storms are increasingly being treated as a primary peril rather than a secondary one.