Navigating Construction Risks and Opportunities in 2025

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What to Expect in 2025 What to Expect in 2025 Construction firms will face unpredictable conditions in 2025, including the environment, market disruptions, uncertain interest rates and the overall economy. But tight risk management and the ability to adapt, supported by strong insurance strategies will help minimize the uncertainty in maintaining profitability, boosting recruiting and retention and staying resilient. 16% Percentage of construction firms that have sufÏcient 1 insurance coverage to protect profits 1. Results from HUB's Outlook Executive Survey, which polled 900 C-Suite and VP-level executives on the issues facing them on profitability, employee vitality and organizational resilience. 2

Profitability Despite optimism, systemic and economic headwinds could pressure profits. The construction industry will continue to find work on large, multi-billion-dollar projects, largely in infrastructure. But inflation, climate change and interest rates — not to mention the expense of insuring the large risks that come with sizable construction projects — could dampen profits. Total new construction spending is projected to reach 2 $2.145 trillion in 2025, hitting $2.340 trillion by 2028. Non-residential construction spending is only expected to 3 increase 2%, stalling after this year’s anticipated 7% gain. In 2025, cooling inflation and declining interest rates are To keep balance sheets strong as construction firms likely to result in more construction projects, but also handle larger and more complex projects, companies will upward pressure on labor and supply costs. Materials costs need to lean on an experienced insurance broker who can will continue to have a major effect on profitability due to proactively identify alternative insurance options and risk 4 fluctuating prices. transfer mechanisms, such as parametric insurance and retention strategies. Forty-four percent of construction respondents to HUB International's 2025 Outlook Executive Survey report they Companies partnering with other construction firms on are “highly confident” about their companies’ performance large projects will need guidance from their broker and a in 2025, which bodes well for growth and the overall holistic approach to insurance and risk management as the state of the industry. However, any new profits could be level of complexity and interconnectivity increases with significantly impacted by the lack of insurance to protect each partner. against risk, with only 16% citing that the coverage they have is adequate. 1. . Equally concerning is the systemic risk of $2 trillion in 2. Statista.com, “New construction put in place in the United States commercial real estate debt maturing over the next two from 2005 to 2023, with forecasts until 2028,” August 7, 2024. 5 6 3. American Institute of Architects, “Construction spending gains years. Refinancing these loans with high vacancy rates is likely to result in more defaults, potentially causing a projected this year, expected to stall in 2025,” July 17, 2024. broader lending pullback, which would be a major blow to 4. Construction Dive, “Construction input prices drop for first time in 2024,” June 13, 2024. the construction industry’s bottom line. 5. MossAdams, “The Commercial Real Estate Debt Dilemma,” April 3, 2024. As the business environment remains unstable — and 6. Statista, “How Many U.S. OfÏces Are Empty?” July 11, 2024. unpredictable — tightly managed financial controls will help construction firms compete for a shrinking pool of capital. 3

Vitality Address labor gap with benefits, training and tech. The construction industry’s continuing labor shortage may alleviate a bit in 2025 — the projected shortage will drop by about 50,000 workers in 2025 — but there will still 7 remain a worker deficit of more than 450,000. Making matters worse: One in five construction workers 8 and there’s a dearth of incoming Gen Zs is older than 55 and Millennials entering the profession. Severe weather conditions are also a major problem — not only does it increase the danger to workers, but it will drive down the number of people interested in construction as a profession. For instance, childcare benefits could help attract more The industry has turned to apprenticeship programs women to the business, while mental health benefits are for help. In fact, there’s been a 40% jump in registered 10 key to combat high rates of suicide within the industry. apprenticeship programs in the previous decade, with Other creative solutions could include access to personal construction firms and their trades accounting for more insurance to take an additional layer of stress off 9 than a third of all apprentices, more than any other sector. employees’ plates. Technology can also help. For example, drones and robots This strategy can deliver quality employee experiences can help with the most dangerous construction tasks. (QEX) that create an environment in which employees There’s also wearable tech that detects body heat and are more engaged and productive than those without fatigue and provides GPS tracking to detect falls or no personalized benefits. movement for an extended period. Personalized benefits can also help attract and retain 7. Construction Dive, “Construction’s labor shortage continues, workers. Respondents to HUB's survey cited challenges in despite dip in open jobs,” June 5, 2024. providing adequate benefits to compete for top workers, 8. U.S. Bureau of Labor Statistics, “Labor Force Statistics from the and nearly half reported low employee participation Current Population Survey,” accessed September 19, 2024. and satisfaction with current programs, highlighting an 9. NewsNation, “America needs skilled workers; are apprenticeships the solution?” April 11, 2024. opportunity to structure a benefits strategy that focuses 10. NBC News, “Construction workers are dying by suicide at an on what employees value. By digging into the company’s alarming rate,” June 23, 2024. population data through a Workforce Persona Analysis, a customized strategy can deliver benefits that workers truly want and need. 4

Resiliency Preparedness and new solutions are essential as resiliency is tested. Challenges ranging from economic to atmospheric will continue to test construction firms’ resiliency in 2025. Weather extremes will continue to disrupt project timelines and more seriously put workers at risk. Extreme 11 heat is a top cause of death for workers laboring outside, and adjusting work schedules to protect against sweltering temperatures makes physical construction work take 12 36% longer. Compounding concerns are the continuing risks of unpredictable materials costs and the prospect of refinancing trillions of dollars in commercial real estate. Modular construction can help construction firms stay resilient against climate-related and economic challenges, Firms who work in lockstep with a best-in-class broker to offering safer working conditions and an entrée into develop a comprehensive claims management plan will be mega construction projects. These mega projects offer best positioned to weather the uncertainties of any type opportunities to improve efÏciencies, capacity and of business disruption. Additionally, having an effective share risk through strategic partnerships or mergers. loss mitigation strategy can help reduce the severity of the Construction megadeals (valued over $1 billion) began claim by leveraging coverages, such as Extra Expense, to 13 reduce downtime and minimize loss of profits. surging globally early in 2024. As catastrophic events, inflation and supply chain Construction firms readying themselves for the challenges constraints affect insurance costs and availability at of 2025 will get their houses in order to take advantage of required limits, rigorous risk management is critical for the good and weather the bad. An experienced broker is resiliency in 2025. key to help evaluate the adequacy of insurance programs and provide risk management resources that support Parametric insurance, which pays policyholders when business goals. weather thresholds pass a prespecified mark, is an alternative to traditional insurance programs that don’t 14 11. Time, “Extreme Heat Is Endangering America’s Workers—And Its cover losses associated with heatwaves, for example. Another alternative, project-specific insurance, is Economy,” August 3, 2023. customized for the job with coverage and costs shared 12. Bisnow, “’Adaptation Cost of Anguish’: How Extreme Heat Is Slowing Down Construction,” Sept. 5, 2023. among owners, general contractors and subcontractors. 13. MileHigh CRE, “US Construction Outlook: Megaprojects will Define Project-specific insurance helps insulate and protect the the Industry in 2024,” January, 2 2024 rest of the business if there is an incident or claim on a 14. Axios, “Increasingly costly heat waves present insurance large project. challenges,” July 16, 2024. 55

Technology Turning to tech in search of solutions. Technology stands to transform nearly every facet of the construction business, potentially alleviating long-standing pressures like safety, productivity and labor shortage. But many firms are overwhelmed by it and have neither the skills nor the budget to invest — nor are they prepared for the accompanying risks like bad actors hacking equipment or shutting down sites entirely for ransom. In addition to training, a cyber incident response plan Still, investments are growing in data analytics, the internet is key to securing adequate cyber coverage, yet three- 17 Being proactive of things (IoT) and telematics, not to mention drones, quarters of construction firms lack one. wearables and other devices. One survey found 68% of against cyber risk through multifactor authentication, firms investing in artificial intelligence alone in 2024; those cybersecurity training and protocols with a solid backup that do invest improve revenue and profit growth and strategy makes businesses much more attractive to 15 underwriters. deliver more projects on time and under budget. Even as more firms test the tech waters, they lack An insurance broker who specializes in construction has awareness of the heightened risk of cybercrime. Deep fake the knowledge and resources to identify and help address technology cyber criminals scammed an engineering firm such exposures with creative solutions to balance the out of $25 million in 2024 when bad actors posed as the growing risks of technology with its lucrative rewards. company’s CFO, highlighting the need for ongoing training to help employees spot red flags and request additional 16 15. Deloitte, “State of Digital Adoption in the Construction Industry verification before making costly mistakes. 2024,” April 18, 2024. And HUB’s survey found only 32% of construction firms 16. CFO Dive, “Scammers siphon $25M from engineering firm Arup via AI deepfake ‘CFO’,” May 22, 2024. have cyber insurance. One contractor, a HUB client, 17. Construction Today, “Safeguarding the construction industry in the suffered a quarter-million-dollar fraudulent funds transfer digital age,” October 23, 2023. incident but was reimbursed through cyber insurance only eight weeks after the event, proof that the coverage was well worth the investment. 6

Navigating Your Next Steps Navigating Your Next Steps HUB construction insurance, risk management and employee benefits HUB construction insurance, risk management and employee benefits specialists will work with you to develop a tailored strategy that will protect specialists will work with you to develop a tailored strategy that will protect the bottom line, support your workforce and build resiliency for 2025. Here the bottom line, support your workforce and build resiliency for 2025. Here are some initial considerations: are some initial considerations: Making risk management a pillar of your organization’s culture Making risk management a pillar of your organization’s culture can help identify exposures and develop response plans in case Develop a can help identify exposures and develop response plans in case Develop a of any type of incident, whether that is a weather-related event, 1 comprehensive of any type of incident, whether that is a weather-related event, 1 comprehensive a threat of physical safety or a cyberattack. Make sure your risk plan. a threat of physical safety or a cyberattack. Make sure your risk plan. broker understands how to approach risk and can identify gaps broker understands how to approach risk and can identify gaps in insurance that could disrupt your daily operations. in insurance that could disrupt your daily operations. To compete for a shrinking pool of skilled labor, personalized benefits To compete for a shrinking pool of skilled labor, personalized benefits Create a based on HUB Workforce Persona Analysis and data analytics can Create a based on HUB Workforce Persona Analysis™ and data analytics can personalized help your company differentiate itself from the competition. Creating 2 personalized help your company differentiate itself from the competition. Creating 2 benefits a quality employee experience (QEX) will boost engagement, improve benefits a quality employee experience (QEX) will boost engagement, improve strategy. recruitment and retention and promote worker wellbeing strategy. recruitment and retention and promote worker wellbeing Remain Safety is already the focal point of your operation, but with Remain Safety is already the focal point of your operation, but with focused on an influx of new and less-experienced workers, injury risks 3 focused on an influx of new and less-experienced workers, injury risks 3 workplace increase. Work with a risk professional to review your safety workplace increase. Work with a risk professional to review your safety safety. program at least annually and address any issues. safety. program at least annually and address any issues. Stay in contact with your broker and let them know about Stay in contact with your broker and let them know about Be transparent changes to the business to eliminate surprises at renewal. Be transparent changes to the business to eliminate surprises at renewal. with your Review exposures and insurance needs at least 90 days prior 4 with your Review exposures and insurance needs at least 90 days prior 4 broker. to policy renewal to allow your broker to find the optimal broker. to policy renewal to allow your broker to find the optimal coverages for your organization. coverages for your organization. 7 7

Construction Rate Guide — U.S. HUB International’s rate guidance comprises an analysis of proprietary national survey data and interviews with HUB commercial insurance brokers and risk services consultants who specialize in the construction industry. On average, rates for middle- to upper-middle-market companies are experiencing rate increases for nearly all coverages as carriers need additional premium to support increased losses and expenses. Below are projections of rate increases that we anticipate in 2025. It’s important to discuss your business’ exposure with your insurance broker and understand what to expect well in advance of your next renewal. Coverage 2025 Construction Insights Rate Guide Increasing claims frequency remains a driving force behind rising commercial auto rates. Businesses that use telematics and are proactive with risk control (i.e., training, reviewing, monitoring drivers) will experience the most favorable rates. Those that move to loss-sensitive or deductible programs will see Commercial Auto +10% to 25% more underwriting flexibility as rates start to stabilize. Carriers may offer more attractive terms in a multi-line primary casualty program that includes general liability and workers' compensation. The market remains volatile for fleets with guaranteed cost program structures due to limited capacity. Carriers continue to scrutinize exposures specific to hired and non- owned auto coverage, especially for accounts with claims activity. Commercial Non-CAT Rates are stabilizing in some construction classes as carriers Flat become more aggressive on commercial projects. However, rates for residential projects vary significantly by state. New entrants General Liability, Residential to the residential market have slowed overall rate increases, while Package, high-hazard and frame construction risks remain challenging. Wrap-Up & Non-CAT Project Specific Flat to +5% Anticipate additional underwriting scrutiny as baseline premiums will elevate. GCs and subcontractors feel financial pressure as the number and size of projects grow. Robust contractor High Hazard prequalification remains crucial as risk of contractor performance +5% to 10% and default issues increase. Workers’ compensation remains highly profitable, but reinsurers Workers' anticipate trouble ahead due to rising claims severity. States Compensation -3% to +3% experiencing legislative pressure for worker classification (independent contract vs. employee) may also impact underwriting and premium audit standards. Umbrella & Auto is the main concern for umbrella renewals and capacity Excess Liability Flat to 10% remains tight for larger, heavy-duty fleets. While the market is still hard, rates are showing signs of moderating for best-in-class risks. 8

Construction Rate Guide — U.S. Coverage 2025 Construction Insights Rate Guide Small Frame Projects with CAT exposure +5% to 20% Small Frame Projects Non-CAT Flat Large Frame Projects with CAT exposure How catastrophic (CAT) areas are defined continues to broaden to +5% to 20% underwrite the increased prevalence of wildfire, convective storm and flood events. Large Frame For any frame project, capacity remains limited, with underwriters Builders Risk Projects Non-CAT reserving capacity for best-in-class projects with well-qualified -5% to Flat developers and contractors and above-average compliance and site security protocols. CLT The use of technology to mitigate jobsite risks, such as water leak (Mass Timber) detection devices, fire protection systems, video surveillance and engineered wood security alarms, continues to be a focal point for underwriters. product +5% to 15% Non-Frame with CAT exposure +5% to 15% Non-Frame Non-CAT Flat With CAT exposure Contractors +5% to 20% Similar to builders risk, insureds with tighter security controls to Equipment mitigate theft-related claims are experiencing more favorable rates. Non-CAT Flat With CAT exposure Installation +5% to 20% Rates have stabilized for non-CAT-exposed sites. Expect some Floater rate relief for CAT exposure. Non-CAT Flat 9

Construction Rate Guide — U.S. Coverage 2025 Construction Insights Rate Guide Rates will vary by occupancy class. Non-habitational builders may experience rate relief, while the market may see increases for any habitational exposure. Environmental -5% to +10% With new carriers competing for business, pollution legal liability (PLL) and environmental rates for most contractor classes remain stable, but markets are somewhat limited for site pollution. Per- and polyfluoroalkyl substances (PFAS) remain a hot topic and underwriting concern. D&O insurance for public companies remains highly competitive, D&O -10% to +5% as capacity is plentiful, and underwriters remain aggressive. Terms and conditions remain favorable for insureds. Cyber rates continue to fall. Although significant breaches/outages Cyber -10% to Flat with service providers (i.e. Change Healthcare, Crowdstrike) haven’t led to rate hikes yet, harder market conditions may occur during the first half of 2025. Despite increased claims cost, carriers remain aggressive for new business, with underwriters reserving capacity for risks with Architects and favorable loss history. Engineers (A&E): Professional Flat Rates for contractors professional liability (CPL) and combined Liability PLL/CPL programs remain stable, while carriers compete Contractors: aggressively for better-performing risks. Flat to +5% Rates for project-specific professional liability (PSPL) remain elevated due to limited market capacity and projects growing in technical complexity and scope. Though surety and SDI are not rate-driven, the markets react by constraining appetite, capacity, and/or tightening coverage Surety & terms and conditions. Surety losses are climbing in certain sub- classes, resulting in tighter underwriting parameters and increased Subcontractor Flat to +5% financial scrutiny. Default Insurance (SDI) As loss activity continues to increase for SDI, expect higher self-insured retentions (SIRs) coupled with more limited program capacity. . NOTE: Rate is typically defined as the amount of money necessary to cover losses and expenses while providing an insurance company with a profit for a unit of exposure. Exposure refers to a business’ or individual’s susceptibility to various daily risks. Carriers evaluate the level of risk an insured faces in calculating insurance premiums. 10

HUB Construction When you partner with us, you’re at the center of a vast network of experts who will help you reach your goals. For more information on how to manage your insurance costs, reduce your risk and take care of your employees, talk to a HUB construction insurance specialist. $2.5B in commercial insurance premium brokered by HUB 40,600 insurance policies managed 134,000 construction clients Stay up to date Subscribe to receive risk and insurance insights and event invitations throughout 2025. Subscribe hubinternational.com