Analysis: The powerful surge in record-breaking tradesman premiums

Tradesman insurance saved its biggest 2022 quarterly jump in average premiums for the end of the year, according to the recent Acturis stats.

The 7.3% leap from Q4 2021 was also the largest measured in any line in the last three months, exceeding the rises in commercial combined, combined liability, fleet, packages and property owners.

Acturis’s figures reach back to 2010. Initially, from 2012 onwards, there were slow year-on-year rises, but tradesman has been accelerating noticeably post-pandemic. Of all the sectors measured, it has risen the most since the start of the stats – standing at 157 compared with the original 100 baseline.

Insurance Age explores the reasons for tradesman’s pack leader status and why it has powered ahead since Covid-19.

Diversifying

The increases in the Acturis stats can be driven by increased cover, rising rates or a combination of both.

Product and placement director at Marsh Commercial, Mark Dyke, said businesses are diversifying and therefore needing more coverage.

The typical electrical contractors are taking on more commercial work and plumbers are working at more hazardous locations, he said, adding that as businesses transform, the headcount expands.

“The more people that work at the company, the more cover and exposure they’ve got and so there’s more premium,” he noted. “I wouldn’t say premiums are going up dramatically, it is still a competitive area and insurers have a lot of appetite in that space.”

Head of SME at Zurich, Will Edwards, backed this up, saying that as individual tradespeople have increased the quantity and scale of business they do, it has led to premium increases.

Balance

During the pandemic, people took time to reflect on their work life, resulting in career and business changes that have also affected the demand for tradesman insurance.

According to Sarah Neale, central trading director at Higos, post-Covid the industry saw people becoming self-employed or changing jobs to what they had always wanted to do, and a subsequent tweak to buying patterns.

“There has been an increase in the online market for commercial insurance, [but] we have found it’s only the very small businesses, for example sole traders,” Neale said.

Inflation

Despite demand affecting average premiums levels, the main contributor has been claims inflation.

Head of underwriting at Axa UK Business Insurance, Gerry Donnachie, said: “Within Axa Commercial Direct, we have seen premiums for trades insurance rise since last year, broadly in line with claims inflation.”

Chief underwriting officer at Superscript, Ben Rose, stressed that claims inflation is a knock-on effect of wider inflation.

“Building material and the cost of labour has significantly increased in recent years,” he said, “meaning a public liability claim for third-party property damage, for instance, costs much more to rectify today than it did five years ago.

“Insurers are dealing with these increased outlays by charging more premium. Certain trades have also been under-priced historically and insurers are attempting to correct this.”

And Zurich’s Edwards also underlined: “The cost and availability of replacement items alongside ongoing costs of labour will be impacting the premiums that are available to customers.”

Insurer appetite

According to the experts, insurer appetite remains stable in the tradesman market, albeit with a caveat for higher-risk trades.

Dyke said: “A lot of insurers have appetite for this marketplace, but they may be a bit more cautious at the higher-risk end of it. So, roofing, scaffolding and steel erection, that sort of area; but in the normal trades there is plenty of appetite.”

Axa’s Donnachie stated: “Generally, the insurance industry’s appetite still appears to be strong, with some variance between specific trades. For example, there are signs within the market that appetite for plumbing and heating has diminished, which is possibly due to increased severity of water damage claims.”

Rose commented: “One trend we are currently seeing is that more insurers are pulling out of higher hazard trades such a plumbers, roofers, scaffolders etc which is effecting premiums.”

Review

Edwards pinpointed that individual insurers will regularly review appetite and make decisions on products based on their conclusions.

“But the covers provided with tradespeople insurance are core to the offering, and therefore I would expect a relatively stable market,” he added. “Coverage is still as relevant today as before.”

Higos’s Neale believes insurers are being more discerning by asking additional questions about the customer, focusing on experience, risk management and work undertaken.

She said: “For well-run clean risks, insurers are still battling to win clients. However, at the moment insurers are far more likely to decline if their underwriting criteria is not being met, or it’s a new venture.”

Cost-of-living

As people tackle cost-of-living challenges, customers start to look at cutting costs wherever they can.

Donnachie noted that while Axa UK has not necessarily seen any indication of trades insurance customers taking less cover, given the challenging economic climate, it may become a consideration for business owners as they look to cut outgoings in the short term.

He urged: “However, this can be a costly decision in the long term as if these businesses need to claim, the overall pay-out may not be enough to help them recover from the event.”

Tradespeople will often need to prove that they have certain policies in place in order to work on-site, meaning it is difficult to cut down on policies. However, insurance on their tools could become a way to cut extra costs.

Neal concluded: “Where tradespeople may take a risk is deciding to self-insure tools, believing their locked van or garage is adequate. But a small cost saving is not worth losing a professional service.”

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