In the construction industry, insurance plays a crucial role in protecting assets and personnel. Current construction industry challenges are impacting insurance, driving the need for insurers to innovate to reduce costs, ensure data security, and stay competitive. Watch part two of our two-part interview series with AAIS Partner, ValueMomentum, to hear from Anand Rajaraman, Vice President of Product Management at OwlSurance Technologies.

Challenges Facing the Construction Industry and the Impact on Insurance

The construction industry relies heavily on the insurance sector to safeguard its key assets, projects, equipment, and personnel. Rajaraman noted that currently, the industry is seeing robust demand. “This is largely fueled by fiscal policies enacted during the pandemic era and initiatives like the CHIPS Act, which have boosted both residential and commercial infrastructure projects,” he said. “Consequently, construction costs have soared steeply.

On top of this, the increase in natural calamities has impacted both the frequency and magnitude of insurance claims. New risks are adding to these challenges. “While the industry traditionally faced losses primarily from events like floods, windstorms, and theft, it now confronts novel exposures, such as those related to renewable energy, hailstorms, and other catastrophic events,” Rajaraman stated. “These factors have created a challenging market for construction project insurance.” While many of these challenges are beyond the control of insurance companies, he believes staying cooperative demands they innovate their processes by leveraging technology and reducing costs.

How Insurers Can Optimize Costs Associated with Construction Insurance

There are specific strategies Rajaraman recommends for reducing overall costs related to managing insurance products and programs. “We are seeing an increase in the prominence of MGAs in the builder's risk space, where they can use their market expertise and favorable cost structures for better risk assessment and pricing,” he explained. “A U.S.-based mutual carrier approached us with a request to set up an AAIS-based builder's risk program for three distinct MGAs, each targeting different customer segments. We recommended a streamlined approach where programs, such as the AAIS builder’s risk standard, serve as the foundation without necessitating individual implementations for each MGA.” Instead, each MGA’s view of the AAIS builder's risk program was tailored to align with their program-specific requirements. According to Rajaraman, this model significantly reduced the costs associated with establishing the programs and all three programs were successfully launched within a span of two weeks. Additionally, by circumventing the traditional underwriting process, the carrier also gained visibility into strong and weaker classes of risks, providing valuable insights into opportunities for improvement.

Ensuring Data Security and Isolation for Multiple MGAs or Carriers Sharing the Same Instance

Rajaraman has found that MGAs and carriers want to ensure there is no compromise on their data; they need to keep their data secure and isolated from other insurers on the cloud. “We prioritize the safety and security of each insurer’s data by implementing separate databases per insurer,” he shared. “This means that each insurer’s information is stored in their own isolated repository, completely segregated from other insurance companies’ data. There is also no mixing or overlap of data between insurers, thus maintaining confidentiality and integrity of each insurer’s sensitive information.” This helps insurers enhance their data security and stay compliant with regulatory requirements and industry standards. Rajaraman recommends this approach for carriers and MGAs looking to benefit from the scale of cloud speed and security as well.

To view the full interview with Anand Rajaraman, click on the video above.

Did you catch part one of our ValueMomentum video series? It focuses on the benefits of utilizing white labeling and the tools and principles that make it successful in the insurance industry. Click here to watch our interview with Bob Ridinger, Vice President of Sales and Business Development at OwlSurance Technologies.