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Key Insurance Claim Trends and What They Mean for 2025

by | Dec 20, 2024 | Firm News |

The construction industry faced significant insurance challenges in 2024, including natural disasters, rising costs from social inflation, and emerging risks tied to artificial intelligence (AI) and sustainability. Understanding these trends is crucial for construction professionals to prepare for 2025 and ensure adequate insurance protection.

Natural Disasters and Evolving Claims Requirements

In 2024, hurricanes, wildfires, and flooding significantly impacted construction projects, leading to a rise in builder’s risk and general liability claims. While sustainability remains a priority in the industry, eco-compliance requirements typically apply during initial project planning and construction phases. However, after a loss, challenges can still arise when insurers scrutinize the rebuilding process for adherence to any pre-existing environmental regulations or commitments.

  • Pro Tip: Construction companies should ensure their policies cover not only physical damage but also any costs tied to maintaining compliance with existing eco-regulations. By proactively addressing sustainability during project planning, firms can mitigate delays or disputes in claims processing and enhance their reputation for environmental responsibility.

Artificial Intelligence: Opportunities and Risks

AI has revolutionized construction workflows, from project design to risk assessment. Yet, its rapid adoption brings new challenges, such as disputes over liability when AI-driven tools fail or introduce errors in design, safety, or execution. These challenges have prompted insurers to rethink underwriting practices for emerging technology risks.

  • Pro Tip: Construction firms using AI must ensure their insurance policies address potential technology-related liabilities. In addition to technology errors and omissions insurance, contractors should consider professional liability insurance to cover risks stemming from errors in design, planning, or project management influenced by AI-driven processes. Proactive risk management and specialized coverage can protect against costly claims and disputes.

Social Inflation and Rising Claims Costs

The construction industry has not been immune to the effects of social inflation, which refers to the increasing costs of claims driven by societal factors, including higher jury awards, expanded definitions of liability, and increased litigation. In 2024, construction firms saw rising costs in claims related to workplace injuries, design flaws, and project delays.

  •  Pro Tip: To address social inflation, construction companies should work closely with their insurers to ensure adequate liability limits and explore alternative dispute resolution methods to avoid costly litigation. Additionally, strong documentation and communication practices can help mitigate the risk of inflated claims.

Inflation and Supply Chain Pressures

While economic inflation showed signs of easing in late 2024, contractors faced ongoing challenges due to rising costs of materials, labor, and equipment. These increased costs not only impacted their bidding strategies but also required careful consideration of liability limits in case of construction errors or delays. Underestimating these factors could lead to financial strain or disputes during claims resolution.

  •  Pro Tip: Contractors must account for inflation and supply chain pressures when calculating project bids and assessing insurance needs. Regularly reviewing and adjusting liability limits, as well as considering policies with inflation protection clauses, can help safeguard against unforeseen cost increases and ensure adequate coverage for potential claims.

Delays in Claims Processing and Coverage Gaps

Claims delays continue to be a significant concern, particularly in project-specific insurance like builder’s risk, wrap-up liability, and subcontractor default insurance. Adding to these delays is the increased complexity of evaluating claims involving emerging risks, such as AI failures or environmental compliance issues.

  •  Pro Tip: Maintain meticulous records of project milestones, contracts, and any incidents that could lead to a claim. Proactively engage with insurers to address potential coverage gaps and consider working with an experienced insurance recovery attorney to expedite claims and ensure fair settlements.

Preparing Construction Businesses for 2025

The evolving risk landscape for construction businesses highlights the need for a proactive approach to risk management. To stay ahead, consider these strategies:

  1. Review and update your insurance portfolio annually, ensuring coverage for emerging risks like AI-related liability, sustainability costs, and rising claims costs tied to social inflation.
  2. Collaborate with insurers and legal advisors to develop comprehensive risk management strategies that align with your business goals and evolving regulations.
  3. Build a relationship with an experienced insurance recovery attorney to navigate disputes, denials, and delays effectively.

Facing a Complex Insurance Claim? Let Us Help

Navigating the evolving world of construction insurance can be daunting, especially with the challenges posed by AI, social inflation, and sustainability demands. Our team of insurance recovery attorneys specialize in helping construction professionals secure fair settlements and protect their businesses. Contact us today to prepare for 2025 with confidence.