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CHICAGOGrowing insurer competition and possibly so-called "right-to-repair" laws are easing prices and conditions for liability coverage of U.S. residential construction, said attendees at the annual gathering of the National Assn. of Professional Surplus Lines Offices Ltd.
The situation is part of an overall trend in which excess and surplus lines writers are attempting to counter softening liability insurance conditions by writing riskier business, said Brett Woods, president of Brett Woods & Associates in Dallas, a unit of U.S. Risk Insurance Group Inc.
Some excess and surplus lines insurers now offer broader endorsements covering additional insureds, said Brian Evans, E&S risk leader in Overland Park, Kan., for Swiss Reinsurance Co.'s Commercial Insurance.
"We're seeing competition offer broader additional insured endorsements than we are willing to offer," Mr. Evans said.
A policy sold to a subcontractor can, for example, name the general contractor as an additional insured with the coverage applicable until completion of a building project, Mr. Evans said.
Some competitors, he said, are expanding those endorsements to cover the additional insured beyond completion of the building project--for example in the case of a fire linked to the subcontractor's electrical work occurring after completion of the project.
Conditions for the coverage are easing because insurers that wouldn't consider underwriting it a year ago now are willing to write it, Mr. Woods said.
Observers say competition is especially keen for smaller projects of roughly 20 homes. The smaller projects allow insurers that are new to the line learn how to underwrite it without committing large amounts of capital that more expansive building projects would require, they say.
But Mr. Evans says that E&S insurers that recently entered the residential construction arena "are looking at some fairly large projects."
Prices on average are dropping about 10%, Mr. Evans added.
While rates for residential wrap-up insurance are down, they remain "adequate," said John S. Edak, executive vp of the western region in San Francisco for Arch Insurance Group.
Observers differ, however, on the impact so far of right-to-repair laws adopted in roughly half of the U.S. states, most within the past several years.
The laws responded to rising construction defect litigation that accompanied housing construction booms. They typically require homeowners to notify builders of a defect and allow the builder a specific amount of time--ranging from days to months--to conduct inspections and make repairs before a lawsuit can be filed.
California and Nevada, for example, passed their right-to-repair legislation in 2003. But the California law, S.B. 800, has not impacted rates, Mr. Edak said.
While Mr. Woods described the right-to-repair laws as a "great thing," he also said he has not seen any indication they are helping bring premiums down as insurers are typically wary of reform laws until time shows they work as hoped.
However, Swiss Re's Mr. Evans says that the laws have helped reduce losses and have helped reduce insurance premiums.