The Expert:
Christopher Wilkie, International Executive General Adjuster, Crawford & Company - Global Technical Services
QUESTION: The industry is reporting that while construction claim frequency appears to be declining, severity is rising. From your perspective, what is driving this shift, and how should carriers and claims professionals adjust their strategies in response?
A: Across the construction claims landscape, a clear pattern has emerged: Claim frequency is trending downward, while claim severity continues to rise. Although this may appear contradictory at first glance, the drivers behind these trends are distinct and rooted in economic, labor, and market realities.
Drivers of Claim Severity Rise
On the severity side, cost pressures are the primary force. Construction claims today are significantly more expensive to resolve than in prior years. One factor is the continued impact of tariffs on construction materials, many of which are sourced internationally.
These tariffs, combined with ongoing inflationary pressures, have driven material prices higher and increased replacement and repair costs. At the same time, the construction industry continues to face a tight labor market, particularly for skilled trades. Wages remain elevated, and, in many cases, insurers must pay premium rates or expedited costs to secure qualified labor quickly enough to mitigate further loss and commence repairs. Delays in sourcing labor or materials often translate directly into higher claim payouts, especially when extra expense or expediting expense coverages are triggered.
Reasons Behind Claim Frequency Decline
In contrast, claim frequency has declined for reasons largely unrelated to cost. Recent weather patterns have been relatively mild, with fewer major hurricanes and large-scale tornado events compared to prior periods. Fewer catastrophic events naturally result in fewer claims.
Economic factors also play a role. The insurance industry has been operating in a hard market, often translating into higher deductibles and thus fewer claims submitted.
Strategies to Address Rising Severity
Given this environment, carriers and claims professionals must adjust their strategies to address rising severity effectively. One critical area is reserving. Early and accurate reserving depends on accelerating the gathering of information at the front end of a claim. Delays or incomplete data can lead to underestimating exposures, which creates challenges as costs may escalate later in the life cycle. Claims professionals who prioritize early loss exposure awareness are better positioned to manage expectations and outcomes.
Equally important is shifting from a reactive to a proactive approach. Construction claims benefit from early engagement and collaboration. Rather than waiting for problems to surface, claims teams should initiate conversations, propose solutions, and work alongside contractors and insureds to accelerate recovery. Viewing the policy as a roadmap to recovery can help all parties move forward more efficiently.
Finally, construction claims require creativity. Each loss is unique, with its own technical, contractual, and logistical nuances. Claims professionals who challenge themselves to think beyond traditional approaches are better equipped to navigate complexity and control severity in an increasingly demanding environment.