Industry plagued by rising insurance costs.

• Author: Wareing, Andrew
• Position: Construction: special report

Higher costs for insurance, materials and energy are cutting deep furrows into the margins of construction companies across Northern Ontario.

"Insurance is becoming more and more difficult to the point where some companies are being excluded or denied coverage," says Harold Lindstrom, manager of the Construction Association of Thunder Bay. "Or in some instances, if the company does any asphalt work or torch down they are getting clauses in their coverage that the flames cause damage, they're not getting any coverage. Insurance is one of the big issues the industry has at present."

"Insurance costs have gone off the map," says Jeffrey Avery of Avery Construction in Sault Ste. Marie. "There doesn't seem to be any people who want to sell insurance to people in construction, transportation or logging. It's taking money out of pockets."

Robert Carter, chief executive officer for the Insurance Brokers Association of Ontario (IBAO), says the insurance industry has depended for many years on investment income to underwrite many of the policies its carriers used to have.

However, with the declines in stock markets around the world, insurance companies have to rely more and more on insurance rates to remain viable businesses. Then of course there is Sept. 11, 2001.

"A number of things have happened," he says. "Construction accounts and other larger businesses have high exposures so, when they have to buy insurance, they have to buy it from 're-insurers'. They lay-off part of the risk. Then after Sept. 11, the $40 or $50 billion that was paid out was paid by re-insurers. They're the ones trying to recover from the insurance companies so they're reducing limits, changing terms and increasing prices."

Carter says insurance companies were able, at one time, to receive 15 to 20 per cent return on investments, meaning that insurers were able to cover every dollar of insurance paid received from insurance with $1.20 in investment capital.

"Investment income has dropped off incredibly. In fact, the capital and surplus of the worldwide insurance industry has dropped by over $200 billion," he says. "It was an industry that, at one time, was funded by $750 billion and that has dropped to about $500 billion. A third of the capital has disappeared, 20 per cent from Sept. 11."

Carter says insurance rates are coming up to where they would have been without the investment income. Also adding to the increased cost is a loss of competition in the industry and the...