Markel Q&A: Why broker relationships are key for construction clients

How did you develop your new construction proposition to stand out in the market?

As a specialist insurer, we are selective about the sectors in which we operate. When we do enter a sector, we take the time to thoroughly understand its requirements and develop a tailored proposition to meet those needs.

Our acquisition of ECIC – a specialist underwriter for the electrical, heating, ventilation and air conditioning markets – in 2017 meant that we already had good understanding of the construction sector. We wanted to expand on ECIC’s strong reputation and offer a product with a wider appetite and more robust range of business support services.

The start point was an extensive research stage to really get under the skin of the sector’s challenges.

Office for National Statistics data shows that in 2020, there were over 340,000 construction sector businesses in the UK, with the majority falling into the SME category of 1-24 employees.

Of these, house builders are the most numerous with 47,500 firms, closely followed by electrical service companies at 45,500. The remaining were spread across civil engineering, plumbing and air conditioning, joinery and other specialist trades.

Following the desk research, we interviewed 20 SME businesses and 20 brokers of different sizes and across the country. Each interview was in-depth for an hour and allowed us to really get under the skin of the challenges for these two groups.

What did the research uncover?

The research uncovered some incredibly useful insight into the challenges brokers face when operating in this market, such as:

• · The market has hardened in recent years and some MGAs and insurers have withdrawn from the market.
• · Brokers can struggle – beyond MGAs and Lloyds – to place heavier trades like demolition, scaffolding, roofing and limits on heat, height and depth.
• · PI is often not written as part of a package by composites.
• · The construction sector is keen on price and tends to do business by negotiation and bargaining, so customers appreciate transparent and competitive quotes
• · eTrading is not used by all in this market, but there is an interest, particularly for those who service small or lower mid-market firms.

Firms in the sector were also focused on other challenges.

Time is an issue, often driven by growth and exacerbated by the fact that tendering for the majority of jobs – which can require significant time and resources – is ‘the norm’ in the sector.

Cash flow can be a challenge, with the risk of customers failing to pay and the rising cost and availability of raw materials hugely problematic when quoting on and carrying out jobs.

Stress can also be an issue, but one that is often not discussed or addressed by firms in the sector. It is known that suicide rates in the sector are high compared to other industries.

What is different about the product and why?

It was important to build a proposition around what both brokers and customers had told us, so our built-in features reflect that.

Customers benefit from extensive cover as standard, including EL/PL, CAR, D&O and legal expenses insurance. On top is an exhaustive list of meaningful extensions such as professional negligence, efficacy and financial loss.

Notably, however, professional indemnity is wrapped into the standard cover. This need was highlighted during our research phase and something our in-house capability allows us to offer.

It was also important that we addressed the customer pain points – cash-flow and debt pressures, lack of time and employee wellness.

We introduced a series of additional standard benefits aimed at easing the issues for customers. These include debt recovery help, access to a legal helpline, HR and health and safety information and guidance, a confidential stress and counselling helpline and medical support from qualified nurses.

It’s this combination of unusual covers and value add-ons aligned with need that we believe makes the product stand out.

What challenges do you see for the construction sector?

Construction is crucial to the UK economy, but the state of the economy and other risks have affected the sector.

The Construction Products Association (CPA) recently forecast the sector will remain in recession throughout 2024 and into 2025, with output falling by 6.8% in 2023 and 0.3% in 2024. Challenging economic times tends to increase theft from construction sites and other risks.

Inflation is a key challenge, with raising the costs of materials impacting business levels and making it harder for contractors to cost jobs accurately.

We have seen a number of major construction projects such as H2 cancelled, but there are some bright spots, with homeowners more likely to extend due to WFH and changes in planning laws.

The picture is a challenge, but there is increasing pressure on government to build homes, which will be a boost for larger firms and the smaller contractors that work with them. It is also a time when the insurance industry needs to step up with the cover and value-add services that support our clients’ businesses.

Do you think the relationship between the insurer and client has changed?

Yes, it has changed.

Given the economic outlook and cyclical nature of the construction market, contractors need to improve their ability to effectively manage risk, something that will require flexibility and robust business continuity plans. As insurers, we need to hold our nerve and work with brokers to ensure clients understand the market dynamics. This will necessitate the provision of greater support and advice from brokers and insurers, something we at Markel recognise and have addressed in our new offering.

Brokers and insurers need to go above and beyond the provision of a contract of insurance. End-of-year and mid-term renewals require careful attention, with brokers and construction clients needing to understand and evidence a full understanding of how their risk profiles change during the year and the steps taken to address and manage those risks.

Insurers and brokers must ensure the cover meets the client’s needs, including sums insured and indemnity periods. Receiving the right level of protection at a fair price, underpinned by expert advice and support, is the key to a successful relationship.