{"id":11545,"date":"2021-10-08T09:14:44","date_gmt":"2021-10-08T09:14:44","guid":{"rendered":"https:\/\/ontarioconstructionreport.com\/?p=11545"},"modified":"2021-10-11T15:30:33","modified_gmt":"2021-10-11T15:30:33","slug":"insurance-and-bonding-more-claims-challenges-for-construction-insurance-while-surety-market-performs-surprisingly-well","status":"publish","type":"post","link":"https:\/\/ontarioconstructionreport.com\/insurance-and-bonding-more-claims-challenges-for-construction-insurance-while-surety-market-performs-surprisingly-well\/","title":{"rendered":"Insurance and bonding: More claims, challenges for construction insurance while surety market performs surprisingly well"},"content":{"rendered":"

Ontario Construction Report staff writer<\/p>\n

After 18 months of COVID-19 pandemic stresses, how well are contractors managing with insurance and surety requirements and claims?<\/p>\n

The answer, say industry representatives, is surprisingly good, considering the massive stresses and challenges that the pandemic has caused in the economy.<\/p>\n

Indeed, insurance underwriting has become more complex and challenging and premiums are higher. But surety loss ratios are healthy and bonding has become easier and quicker to manage with the increasing adoption of E-bonds.<\/p>\n

Still, contractors need to take their insurance and bonding obligations more seriously than ever before \u2013 and not simply regard these as last-minute \u201ccheck the box\u201d requirements.<\/p>\n

\"insurance
Matthew Civichino<\/figcaption><\/figure>\n

\u201cQuotation turn-around time is much longer,\u201d says Matthew Civichino, vice-president, Contract Surety and Commercial Insurance, at Elm Insurance Brokers Inc.<\/a><\/span> \u201cFor quotations, underwriters are asking for architectural drawings, cost breakdowns, environmental assessment reports and (evidence of) experience from the contractor on similar projects, showing a proven track records.\u201d<\/p>\n

These observations are backed up by Dan Boan, a partner and construction and infrastructure specialist at Borden Ladner Gervais LLP<\/a><\/span>. Owners and contractors are increasingly exploring the possibility of insurance claims for issues they wouldn\u2019t have considered before.<\/p>\n

\u201cTraditionally, when you get a fire on a project, everyone looks at the insurance because they know that it stands for, but we\u2019re seeing a trend for parties looking towards the insurance package as an option for recovery when we didn\u2019t necessarily see it before.\u201d<\/p>\n

One result: Increased claims and disputes\/litigations relating to these new claims. Another change: \u201cWe\u2019re seeing the insurance companies looking at their polices, premiums and everything, to try to figure it out. Are there additional exclusions? Should we be charging more premiums for these products? Should we be increasing the premiums for these products?\u201d<\/p>\n

Boan says these more challenging underwriting conditions mean that it is vital for contractors to communicate with their insurance specialists early in the planning stages \u2013 and they must be careful to read and review their contracts carefully, to avoid unexpected liability and insurance coverage gaps.<\/p>\n

\u201cMy advice is to get a good broker, engage them early in the process, and actually review the requirements and the policies form the outset, so that you\u2019re making your sure you are covering what you need to cover as part of the security package.\u201d<\/p>\n

As for 2021, the overall health of the industry has been spurred by massive government infrastructure spending. This has led to a much better than expected first half with impressive premium growth and loss ratios approaching pre-pandemic levels.<\/p>\n

\"Steve
Steve Ness<\/figcaption><\/figure>\n

\u201cOur numbers for the first six months of 2021 are, I think, just under 14 per cent better than they were for the same time in 2020, and six per cent better than they were even in 2019. So 2021 is shaping up to be a phenomenal year,\u201d said Steve Ness, president of the Surety Association of Canada (SAC)<\/a><\/span>.<\/p>\n

\u201cWhen I talk to our people across the country, including Ontario, Quebec, everywhere, they\u2019re saying: \u2018Yeah, we\u2019re going great guns and loss ratios are great. They\u2019re back down to the pre-pandemic levels. I think at the end of the second quarter we were at a 24 per cent loss ratio.\u201d<\/p>\n

Ness says COVID-19 restrictions helped encourage the increasing adoption of E-bonds, a fully digital surety product (The final e-bond can have the look of a PDF but it much more than that, with additional security features.) Notably, E-bonds reduce the possibility of errors, as you cannot complete the process unless everything is correct, when sometimes mistakes can slip through on manual bonds.<\/p>\n

The insurance and bonding representatives say the introduction of new Ontario Construction Act prompt payment and adjudication requirements, and mandatory bonding for most larger government projects, has been helpful in reducing stress but the impact hasn\u2019t been overwhelming.<\/p>\n

After all, public agencies and municipalities had required surety bonds on most projects before the new rules went into effect, said Boan. \u201cThe automatic release of holdback has changed the process\u00a0 a little but there isn\u2019t much difference at the end of the day.\u201d<\/p>\n

New CCDC standard contract forms have increased the insurance requirements from $5 million to $10 million, and the deductibles as well. As well contractors pollution liability has become a standard CCDC requirement, says Civichino.<\/p>\n

He also said that insurers are taking water damage claims more seriously. \u201cInsurers are wanting the client to have a leak detection system installed in order to minimize water losses. Higher deductibles and higher water damage deductibles are more commonplace.\u201d<\/p>\n

The conclusion: There\u2019s no need to panic \u2013 surety will continue to be available and reasonably priced for qualified contractors. While insurance will cost more and underwriting will be more challenging, contractors can alleviate these concerns by consulting with their insurance specialists early in the project planning stages.<\/p>\n

Civichino sums up the advice:<\/p>\n