Special Section sponsored by

CARRIERS

Managing Implications: Federal Stimulus
and Insurance Opportunities

By Steve Silverman and John Tutera, Hiscox

This past year, the federal government passed the $787 billion stimulus package that will no doubt have an effect on many industries and professions. While the stimulus has no provisions specifically targeted at the insurance industry, there will be an expected increase in business for commercial insurers based on proposed infrastructure building. Infrastructure work will likely involve maintenance and repair of bridges, roadways, airports, wastewater treatment plants and other public use facilities. The upcoming increase in work will have a “ripple effect” on the insurance industry—namely for the construction and inland marine sectors to provide coverage for risks associated with these anticipated projects.

Construction companies and contractors will be first in line to receive the proposed infrastructure work. Other construction professionals including developers, engineers and designers will also begin to see an increase in requests for projects. Consequently, the inevitable demand for more construction equipment, raw materials, and services such as the transportation of these items will indirectly result in a boost for inland marine business.

With an increase in activity, it is important that agents and brokers keep up with the ways that the stimulus package ripple effect might impact policies for their clients. Most notably, there may be an increase in monthly premiums as insurers adhere to stricter catastrophe modeling due to the uncertainty of potential risks that may arise from new projects. As a result of the economy, insureds may look to cut corners to reduce costs, which will have a converse affect on risk implications for their business. As insurers aim to adapt their underwriting capabilities to cater to this ever evolving list of risks, the onus is also on agents and brokers to be aware of potential liabilities and to advise clients on how they can best manage these.

From a construction coverage perspective, agents and brokers could find an increased demand for efficacy coverage, product warranties and defects coverage, which are not traditional insurance products and difficult at best to obtain in any market. Specifically, emerging risks for builders may include increased costs in replacement parts, particularly components that may be modular in format. The additional lead time required for specialist replacement components may also have a time element impact on coverage.

It is more difficult to pinpoint anticipated risks stemming from the stimulus in regards to the inland marine sector, but the trickle down from construction is relevant here as well, with anticipated risks strongly focused on vehicular and rail transportation.

In order to remain a trusted advisor to clients and react in a timely manner to the affects of the stimulus package, producers will need to have general knowledge across multiple industry entities including construction companies, vehicular and rail transportation, construction equipment, mining operations and port operations. Insurers, agents and brokers are all optimistic that the stimulus will create more opportunities for the construction and inland marine insurance industry, but the challenge will be for agents and brokers to acquire as much knowledge as possible to navigate this uncharted territory while continuing to anticipate client needs, ensuring strong long term partnerships.

Steve Silverman and John Tutera are vice presidents of Hiscox’s Inland Marine and Construction Property teams, respectively.