After several years of hardening conditions, the global construction insurance market is now entering a definitive phase of softening, driven by increased competition and a fresh influx of underwriting capacity. According to a new report by Gallagher Specialty, insurers are reevaluating strategies as they face pressure to maintain market share while new players reshape the landscape.
Premium rates, once on a steady upward trajectory, are now declining in select areas, particularly for well-performing annual contractor programs and lower-risk projects with minimal exposure to natural catastrophes. Insurers are increasingly offering more attractive renewal terms, including long-term agreements with flat premiums or pre-negotiated discounts, to secure and retain favourable accounts.
While technical pricing remains firmly in place for high-risk construction, such as projects involving combustible materials, complex engineering, or exposure to natural hazard zones, the competition is intensifying elsewhere.
Insurers are cautious but still prepared to deploy capacity on major international risks. However, rising construction costs and increased project valuations have created hesitancy around full-scale participation. Meanwhile, recent changes in procurement laws across several jurisdictions have reduced demand for international capacity, adding further pressure to already competitive conditions.
The report notes that new entrants, including Managing General Agents (MGAs) and follow-market providers, along with expanded underwriting teams in key regional hubs, are accelerating the softening trend.
The softening has been most noticeable in the professional indemnity (PI) space, where premium reductions, particularly for excess layers, have become widespread. Following improved profitability in 2023 and early 2024, insurers have more flexibility to expand portfolios. Once-restricted coverages, such as fire safety and cladding, are gradually returning, albeit cautiously and often limited to risks demonstrating strong risk management and thorough historical project audits.
However, caution persists around legacy exposures, particularly those tied to projects completed before the regulatory changes of 2018. Insurers continue to monitor contractor solvency and supply chain resilience, wary of the tight margins and recent wave of insolvencies affecting the industry.
Despite the broader market softening, natural catastrophe (NatCat) risks remain under close scrutiny. While pricing for earthquake and windstorm exposures has remained relatively stable, concerns around climate-related volatility, especially flooding and severe storms, have prompted underwriters to focus more intently on mitigation strategies and loss prevention planning. Insurers are also watching the upcoming U.S. windstorm season closely, bracing for potential volatility.
While the construction insurance market is clearly trending toward a softer cycle, the report emphasises that technical underwriting discipline remains intact. Insurers are actively adjusting to shifting market conditions, seeking to balance growing competition with the need for long-term sustainability.
The second half of 2025 is expected to be a pivotal period. Whether the softening continues or stabilises will depend on economic conditions, loss trends, and how insurers manage the delicate balance between growth and discipline.