Construction costs rising: The insurance capacity challenge

You can pre-order material, you can sort out your supply chain issues, but I don't know how everyone's going to solve the labour issue. New technologies, new means and methods, prototypical methods, that creates uncertainty, it creates a latent sense of risk. Hello everyone and welcome to our first Construction Insurance Power Panel of 2026. Yes, every quarter we'll be meeting again to discuss the latest trends and issues in Canadian construction insurance space, and to do that we welcome some familiar faces. Let's meet our panel. They are Chris McLean, Managing Director, National Leader, Construction and Infrastructure at Aon, and Colin White, Director, Senior Client Advocate, Construction at Willis. So welcome back both and let's start by setting the scene. I'm going to throw some statistics at you if I may. So labour shortages in residential construction are expected to worsen. Skilled trade job vacancies projected to grow from 11% annually since 2017 to 13% per year between 2026 this year and 2045, and that could potentially add $7.9 billion annually to renovation and repair costs and indeed put persistent butward pressure on premiums and rebuild timelines. So with all of that in mind, how are you working with insurers in terms of adjusting builders' risk soft costs, DSU, indemnity periods to reflect longer rebuilds, higher labour costs, and indeed how are you communicating these pressures to those owners and contractors, Chris? Great question, Paul. So I think everyone's pretty realistic about all the different factors, whether it's supply chain issues or maybe some labour challenges. So I believe that we don't really have a problem necessarily with educating owners and general contractors. Certainly we need to make sure we're collecting all the right information and we need to ensure that everyone is on the same page and understanding of what their project entails and the challenges that they're going to face. But I see labour issues in the future being really the element that's going to drive the risk bus, and it'll certainly, I think, manifest itself more once we start seeing these very large data centre projects come to the market in Canada. I think that that'll be such a change. Certainly we have mega projects in Toronto and Vancouver and Calgary and Montreal, and they have absorbed a lot of labour and a lot of, for example, mechanical, electrical capacity. These data centre projects are on a different level, and so I think that'll be the next concern and how we face that. That'll be the biggest thing, because you can pre-order material, you can sort out your supply chain issues, but I don't know how everyone's going to solve the labour issue. I think the large general contractors are on top of that, and the concern would be that where does everyone else sit and what are they going to do to meet that challenge? That's sort of what we're looking at these days, in my opinion. Yeah, and Colin, just to bring you in as well, I'm interested to know, do you think there really is an exodus from the market right now? Definitely. We're seeing an exodus of labour from the construction industry with retirements, and at the same time, as Chris touched on, we're seeing an increase in demand of labour for construction projects. We've seen continued investment and development on the residential side across Canada, albeit it has slowed for the time being, but we continue to have investment in large mega-infrastructure projects and a renewed investment in the private sector with mining projects and data projects on the horizon. That's all going to combine to really put a stress on the labour market in the short-term and long-term, and it's not something that's easy to address in the short-term. That is something that our clients are very well aware of, and when it comes to the insurance side of it, it's understanding that this could put pressure and create headwinds when it comes to rebuild times in the event there's a loss on projects. So, making sure those policies have been structured and tailored to account for that, meaning it needs to account for increased costs to rebuild and include provisions to provide automatic extensions and provisions to account for the foreseeable prolonged rebuild time compared to the original build schedule. That same conference board IBC analysis did warn that extreme rebuild and living expense costs could cause insurers to, and I'm quoting here, fully exit specific markets and regions, which of course would further reduce competition, push premiums higher. So, in your Canadian construction portfolio, are you seeing early signs of capacity withdrawal or tighter appetites for certain project types or indeed regions, and how are brokers like yourself and insurers working together to avoid a disorderly pullback? I'd say fortunately for the time being, we're not seeing that as an issue. Right now, we're in the soft portion of the insurance cycle, which means there's plenty of insurance carriers and capacity available to underwrite and insure projects and operational programs for our clients in the construction industry. So, that's real positive. But at the same time, there's always that consideration of carrier management capacity management that we got to plan for. So, making sure that our clients are well socialized with the insurance market, there's good familiarity with their insurance partners, with our clients and the projects they're building. That's key to ensuring there's insurance capacity and appetite available in the immediate and time frame as well as in the future. So, is this perhaps then, Chris, more of a personal lines issue? I think so. I think right now, we're seeing the personal lines market firm up. Certainly, over the last couple of years, that's continued to firm up while the commercial market and certainly the construction segment has continued to soften. So, I totally agree with Colin. To date, no retraction. If anything, we're seeing more capacity come into the market. I think it's at the top end where we have these very, very large projects. Maybe that's where we're searching for capacity in different and maybe unusual places from where we had previously. But today, what we're really doing is making sure planning around project starts with our market partners so that we can line up capacity, so that we understand what's available and partly so that they also understand because they are so hungry to write projects, to participate on annual programs. So, it's beneficial for us. It's beneficial for the insureds, but it's also beneficial for the insurers because they have a growth mandate. So, we're trying to work our best to ensure that we meet that goal for them while also ensuring that there's ample capacity so that there's no surprises with projects, especially as we go into maybe potentially some uncertain times depending on what happens geopolitically. Chris, let me jump to another report if you don't mind. The Canada Construction Industry Report, which came out in December of last year, projects that the sector is going to grow from this year onwards with output expected to expand at an average 2.6% annually from 2026 to 2029. That's going to be driven by government investment in regional connectivity, renewable energy, affordable housing. So, with that pipeline in mind, how are you planning Canadian construction insurance capacity with, of course, insurers and underwriting strategy as well for large infrastructure and housing programs, particularly, of course, around aggregate management for major public sector and green energy projects? It's a great question. So, building on sort of my last answer, we're very proactive and we've been very proactive around lining up capacity for the very largest LRT projects, for the very large hospital projects, and that's been very successful to date. I think that it allows all the markets to see what's happening in the large construction space. We're able to ensure that everyone's getting opportunities. We're also able to align our clients with the markets that are best able to and most suitable for that risk. So, that's been effective. I think looking ahead, and we sort of alluded to some of the very large projects that are going to happen, whether it's massive data center projects or tunnel projects coming up, and I'm sure there'll be some bridge projects too, but all that work is going to need maybe a different solution. That different solution, I think, is going to be driven by working on our human capital side, trying to bring in the capacity that has not been getting Canada to date, working with our reinsurance team to ensure that if there is a market or markets that are interested in riding risk in Canada, that we're bringing them to the table. So, I think there'll be some really strategic discussions that need to happen or need to continue to happen for us to sort of meet the challenges that we see ahead, but it's a very exciting time and this is all happening while private construction has really slowed. And so, I think the sort of question is, if that picks up, will there be enough capacity? I think the answer is yes, but it's going to take some creative solutions. And I mentioned as well, Colin, that capacity management is going to be key here to Chris's point. Absolutely. The sheer size of the projects we're seeing and the way these projects are being executed definitely require us to take a very thoughtful strategic approach of how we structure programs and determine limits. And that really falls on us as brokers to understand what the loss limits are or are required for these projects to structure the programs properly. So, that really goes to modeling the loss scenarios. So, it goes to creating or working with our clients to develop flood and earthquake models to determine what their probable maximum loss scenarios are. And from that data, working with them to determine not only the right limits and insurance program structure for the immediate phase, but potential down the road development of their projects as they build them out, such as the case for data centers. Because with the limits being required, it's very careful we're managing the capacity of our insurers throughout the entire lifecycle of the project, not just specific phases. So, that's definitely going to be a key item in addressing this exposure. As well, when it comes to CAD modeling and PML studies, probable maximum loss studies. So, getting that data and using that for the benefit of our clients when we go to market, so that we can work with insurers to alleviate any concerns or concerns they have about aggregation issues and loss scenarios. Well, that same report, Colin, as well, it does flag something else, which of course is those ongoing political tensions, particularly, of course, those U.S. tariffs on Canadian materials. They're seen as key headwinds for construction in this year and onwards, indeed. But how are you building those tariff-driven cost escalation supply chain risk into your Canadian insurance placements? So, of course, projects don't theoretically become underinsured mid-build. Absolutely. It's very similar to our earlier comments and discussions about the labor shortage. Really, it's about structuring programs in terms and conditions to account for potential escalation in cost, whether that's due to shortage of labor or material costs that could be increased due to tariffs, and making sure the policies are adequately structured to accommodate that. And as well, per earlier conversations, Chris and I have both touched on it, it's carrier management and making sure the programs have adequate capacity to absorb any increase in cost mid-term should the project values increase. We saw this during COVID with lumber prices when they went up over 200%, where programs had to increase their limits. So, by having proper carriers and capacity on the programs, that will allow us to address those situations if they arise. So, the wording, it seems, is super important here, Chris. Yeah, absolutely. I think Colin answered that really well, talking about just needing to make that you're asking questions and the wording needs to match the risk. But I think a lot of lessons, a lot of hard lessons were learned during the pandemic. The lumber is probably the greatest example that Colin mentioned there. You saw projects that basically, once they'd started, there was such a spike in the value of the material that that project was no longer feasible and had to stop. Or if it went on, the contractor was going to lose a significant amount of money. So, I think people learned a lot of lessons about that and have pivoted so that I think volatility is more well understood. And it's trying to understand all the different outcomes that need to be considered. And to Colin's point, that goes back to the wording, ensuring you're using a manuscript wording versus an insurer wording if possible, making sure that there are extensions of coverage that address escalation, that address sublimits, that address appropriate limits for DSU and soft costs. And these are all things that just need to be answered in the application stage, but really just being inquisitive with your clients, with owners and contractors, and also making sure that all the stakeholders, including lenders, really understand what the issues are and what needs to be maybe done from a risk transfer perspective. Well, I've been throwing up plenty of reports at you on this discussion. I'm just going to wrap up with one more if I can, which is going to go back to that IBC and Conference Board report, which noted that without a coordinated workforce and productivity strategies, that would include greater use of modular construction, digital design tools, robotics, that labour shortages will continue to drive construction inflation and strain disaster recovery as well. So Chris, with these new construction methods, technologies adopted on Canadian sites, how are you updating those builders' risk and wrap-up underwriting? And indeed, what guidance are you giving to contractors and owners on the documentation, indeed the risk engineering standards that you're going to expect going forward? Yeah, it's a great question. The way means and methods have evolved really, really means that we have to ask different questions. We can't just accept having an application completed and maybe supporting documentation. We need to ask questions about satellite project sites, about prefabrication, about delegated design. And then from there, we can then kind of match solutions with the issue or the exposure rather. And that's happening and that's good. I don't know that that happened all the time previously, because I'm not sure that everyone appreciated maybe the nuances of cover. But once you've answered those questions, you're then able to really kind of find the solution. So whether it's a project-specific professional liability policy that needs to be placed or expanding the project definition so that it captures different project sites, I think that's really critical. So that's all happening and that'll continue to be important. And you're right. I mean, the labor is sort of that one thing that no one really can understand sort of what the exposure or the risk is going to be. And you will see more robotics and you will see more AI-driven design. And so that's why it's going to be critical to ensure that you're asking the questions so that then you can ensure that the policy language doesn't have exclusions that kind of could have adverse effects. So that would be kind of our working position on it today. And that's one of the things, isn't it, Colin? I mean, innovation can be a great thing, but it's also a little bit of a double-edged sword. Absolutely. Innovation is key to construction to ensuring that productivity increases. But from an insurance perspective, through an insurance lens, new technologies, new means and methods, prototypical methods, that creates uncertainty. It creates a heightened sense of risk. So our job as insurance brokers is to work with our clients to eliminate that uncertainty, to provide comfort to our insurance partners. So that's, as Chris mentioned, it's not just about filling out an application, checking the box, if you will. It's about working with our clients to tell the full story, to give the insurers the information they need to gain comfort with the innovative materials and means and methods being used to execute these projects. An example of it is an innovative method is getting case studies and examples of how similar techniques and methods have been successfully deployed and used in projects in other parts of the country or globally. That additional information provides the needed information our insurance carrier partners need to effectively and competitively underwrite the risk. So that goes a long ways in addressing some of those risks associated with new technologies. But further to Chris's point, it's a broader conversation too, because what we realize is that the risks aren't just at the project site anymore. They're satellite locations, they're off-site manufacturing. So the quality control, quality assurance information that we used to just get at the build site, we need that similar information now at all the remote and satellite manufacturing and production facilities. So it's a much bigger exercise, a much bigger conversation as the nature in which these projects are constructed and delivered has evolved over time. Well, great thoughts and indeed another standout panel. Huge thanks to you both for your time today. And thanks to, of course, to you for watching. We'll see you next time right here on Insurance Business TV.