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Construction still represents $21.5 billion in premium

Despite a destructive economic downturn, the construction industry remains an important niche.

While nearly every industry in the United States felt the effects of the recent recession, none was harder hit than the construction industry. In some areas of the country, housing starts almost ground to a standstill as the market was flooded with foreclosures. Consumer confidence added to the woes as even those individuals who could afford to purchase a home didn't want to take the chance that the next shoe to fall might land on their head. And those individuals who were willing to try found the lending market less than sanguine, where even perfect credit might not guarantee success in obtaining a mortgage. So it comes as little surprise that residential contracting saw a steep decline that continues today. In fact, employment in the construction industry at the end of 2011 was at 72% of 2007 employment figures, according to the Bureau of Labor Statistics. This compares to employment in all industries, which stands at 95% of 2007 numbers.

And despite this gloomy news, the construction sector remains an important niche, with $21.5 billion in premium at the end of 2010 from nearly 2.9 million businesses, according to data compiled by MarketStance, Middletown, Connecticut, representing more than 20% of total commercial lines premiums.

Not surprisingly, workers compensation is the most important line of business in this employment-dominated sector, with nearly $8.8 billion in premium, or 41% of the total, followed by general liability ($5.9 billion; 27% of the total) and commercial auto ($5.1 billion; 24%). The balance of the premium is in BOPs, property, inland marine and boiler and machinery.

The dismal employment picture had the greatest impact on workers compensation, as payroll exposure dropped in all segments of the construction industry, falling an average of 5.3% a year during the two-year period ending in 2010. MarketStance prognosticates that there will be a turnaround in all sectors during the next two years, with average payroll exposure growth of around 4% a year. Sectors that are anticipated to have the strongest average growth are utility construction (7.7%); other heavy and civil engineering construction (6.6%); and highway, street and bridge construction (5.1%).

Although a recovery is anticipated, premium growth in this niche is expected to be slow. Only 38% of the $21.5 billion are in market segments where employment growth is expected to be better than average. Needless to say, that varies by state; with 23 states showing rather poor performance in this area (less than one-third of construction premium is in sectors where employment growth is expected to be strong). At the other end of the spectrum are North Dakota and Tennessee, where 98% and 83% of construction premium, respectively, are in growth sectors.

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