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Construction in a Crush: Why Captives Are the Lifeline You Need

The construction industry is booming. It's a time of optimism and a testament to the enduring strength and ingenuity of the American contractor. But beneath the surface of bustling business, a challenge looms a challenge that threatens to crack the foundation of this very progress: rising insurance costs are putting a stranglehold on construction companies. 

Data Dive: The Perfect Storm

According to a recent study, construction spending is projected to grow by 6.2% in 2024, fueled by infrastructure investments and a rebounding commercial sector. Yet, this very growth creates a perfect storm for insurance:

  • Skyrocketing Costs: The Associated General Contractors of America (AGC) reports that construction insurance premiums have increased a staggering 23% year-over-year in 2023. Our latest P&C Market Report highlights that we’ve experienced 25 consecutive quarters of marketplace rate increases from 2018 to the present and are expected to stay at elevated levels for the foreseeable future. This puts a massive squeeze on already tight profit margins.

  • Hard Market Blues: We're experiencing a classic "hard market" – a period of rising premiums and stricter underwriting guidelines. Companies with even minor risk factors may experience challenges in securing coverage or have limitations placed on their policies. Additionally, specialty lines of insurance, such as key coverages like cyber and pollution liability, have become increasingly scarce and expensive.

  • Litigious Landscape:  The phenomenon of "social inflation," caused by the continuous escalation of jury awards, is significantly inflating claim costs across many industries. This trend is particularly concerning in the construction sector, where accidents and injuries are inherent risks. As litigation becomes more prevalent and settlements soar, construction companies face mounting pressures on their insurance claims, putting further pressure on financial burdens and raising overall operating costs.


The Standard Market Challenge

In this turbulent environment, the traditional insurance market is struggling to address the unique needs and challenges faced by construction companies. As a result, many are seeking alternative insurance solutions that offer greater customization, innovation, and responsiveness to their specific circumstances. Here's why:


  • Limited Coverage: Standard policies often have exclusions or limitations that leave critical gaps in coverage, exposing companies to significant liabilities.

  • Lack of Control: Construction firms have little control over premium pricing or policy terms. They're at the mercy of the market's whims.

  • Reactive, Not Proactive: Traditional insurance focuses on responding to claims after they occur. Captives, on the other hand, empower companies to proactively manage risk.


Captives: Your Custom Risk Management Solution

There is a reason more best-in-class construction companies are turning to captives– they offer a dramatic shift in how you manage risk. Imagine this: instead of being at the mercy of traditional insurers with potentially inflexible policies and rising premiums, captive insurance allows you to be an owner and decision-maker in your own insurance company.


Here's how captive insurance empowers construction firms in the current economic landscape:


  • Cost Control & Predictability: Break free from the cycle of rising premiums dictated by the volatile insurance market. By retaining surplus funds within the captive, you gain greater control over your insurance costs and potentially achieve significant savings. This financial relief can be a game-changer in a tight economic environment.

  • Tailored Coverage, Not a One-Size-Fits-All Approach: Unlike traditional policies, captives can be designed to address the specific risks inherent to your construction operations – from builders' risk to workers' compensation. This ensures you are adequately covered for the risks that matter most.

  • Enhanced Control & Proactive Risk Management: Captives empower you to be a part of your claims management processes and risk mitigation strategies. This proactive approach allows for faster response times, potentially leading to lower claim payouts and improved risk prevention strategies that keep your operations on track.


Key Considerations

The prospect of moving to a captive can be exciting, offering the potential for greater control and cost savings. But before diving in, it's crucial to lay a solid foundation. Here are some key considerations for construction companies exploring the captive insurance option:

  • Risk Assessment: Think of a risk assessment as the blueprint for your captive program. A thorough analysis will identify and quantify potential exposures specific to your construction operations. This in-depth understanding allows you to choose a captive program that effectively mitigates risks and optimizes costs in the current economic climate.

  • Regulatory Expertise: Captive insurance programs are subject to specific regulations depending on the chosen domicile. Partnering with an experienced captive provider like Cottingham & Butler ensures you have the expertise to navigate these regulations. This frees you to focus on your core business activities, confident that your captive program is compliant.

  • Financial Strength: A healthy financial standing of all members is vital for the long-term success of your captive. Partnering with an advisor with expertise in financial analysis and risk assessment is key. They can help you establish optimal capital structures for your captive, ensuring it has the financial strength to weather any storms.

  • Claims Management: Within your captive, you should have a dedicated claims team directly invested in your company's success. Imagine a claims partner that functions as an extension of your risk management team, working diligently to ensure fair and efficient claims resolution, minimizing losses as if it were their own money on the line. This alignment of interests fosters a proactive approach to risk management, ultimately benefiting your bottom line.


Investing in Your Future: Partnering for Success


At Cottingham & Butler, we've been working in the trenches alongside construction companies for decades, and we understand the unique challenges you face. That's why we specialize in helping construction companies leverage member-owned group captives to build a more secure future.


Our Expertise, Your Advantage

Cottingham & Butler isn't just another insurance broker. We have a distinguished captive track record dating back to 1993, managing 12 successful captive programs with over 360 members. We specifically have a member-owned group captive dedicated solely to best-in-class construction companies, ensuring you only share risk with people like you. Our industry-leading 99% renewal retention rate speaks volumes about the value we deliver.


Selective Membership, Exceptional Results

We understand that a captive's success hinges on a strong foundation. That's why we meticulously select members with a like-minded focus on safety and results, a positive loss history, and financial stability. This selective approach, combined with our in-depth captive knowledge, has resulted in loss ratios significantly lower than the industry average.


In short, by partnering with Cottingham & Butler, you gain access to:

  • Decades of Captive Management Experience: Leverage our proven track record to implement a captive solution that optimizes your risk management strategy.

  • A Selective and Collaborative Community: Benefit from a network of like-minded construction executives who share best practices, fostering long-term success.

  • Industry-Leading Loss Ratio Performance: Our deep understanding of captive structures and selective membership approach lead to demonstrably lower risk profiles for your captive.


Ready to build a more resilient future for your construction business? Contact our captive experts today and discover how Cottingham & Butler can help you leverage the power of captive insurance.


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