Loss Cycles: Why Construction Tightens First

You hear the same story every few years. Premiums jump, underwriting gets picky, and suddenly the same job costs more to insure.

Construction usually feels that squeeze first.

If you want the short version of why, see Loss Cycles: Why Construction Tightens First. This post explains the mechanics in plain English.

What’s really going on

Loss cycles are not random. They are the result of a few heavy years that push loss ratios above what carriers can tolerate. When that happens, the carriers tighten underwriting and raise rates.

Construction gets hit early because the claims are spiky. A bad year can look very bad, very fast. That makes underwriters cautious, even if your own history is clean.

Construction sits at the front of that line for two reasons. First, losses are more volatile. Second, severity can spike fast. That combination makes the book harder to predict.

So when carriers need to shore up results, they pull back where the volatility is highest. That is construction.

If you have ever seen a carrier exit a class code overnight, that is the cycle in action. It is not personal. It is a portfolio decision.

Capital pressure is part of this too. When loss ratios spike, carriers protect capital and satisfy regulators by cutting exposure where it swings the most. Construction is near the top of that list.

Weather does not have to be catastrophic for this to happen. A series of average years with steady claims can push the book over the edge just as surely as one huge storm. The cycle is built on totals, not headlines.

Rate filings add friction. Even when carriers want to ease off, they have to file and wait. That is another reason the tight period feels longer than it should.

Tradeoffs and gotchas

The first gotcha is assuming the market is personal. It is not. If your loss history is clean, you still get swept into the tightening cycle.

The second gotcha is assuming shopping will fix it. In a tight cycle, most carriers are moving the same direction. That is why the quotes look similar.

The third gotcha is the lag. Even after losses improve, underwriting can stay tight because carriers want a full year or two of confirmation. That is why the cycle feels longer than the weather that kicked it off.

The fourth gotcha is using the wrong lever. In a tight market, some contractors chase cheap deductibles or aggressive retro plans without understanding the volatility. That can work, but it can also amplify risk. Deductibles and Retro Plans: Know the Volatility covers the tradeoff.

The fifth gotcha is ignoring frequency. When the market is tight, the smallest claims matter more. Loss Frequency vs Severity for Small Contractors is the clearest explanation.

There is also a timing trap for renewals. If you shop in the middle of a tightening wave, every quote can feel high. That is not a broker problem. It is the cycle showing itself.

If you do switch carriers during a tight cycle, expect stricter underwriting. The questions get deeper, the documentation matters more, and the appetite is narrower.

Price levers or decision factors

These are the levers that still matter in a tight cycle:

• Class code discipline. If your code is wrong, the premium is wrong and the audit will find it. Class Codes and Audits: The Back Premium Trap is the short version.
• Payroll stability. Big swings create uncertainty. Underwriters price uncertainty high.
• Loss frequency. Small claims add up and signal weak controls.
• Deductible structure. A higher deductible can help, but only if you can absorb it.
• Documentation. Clean records keep you in the acceptable tier.

If you want to see how payroll drives base rate, Payroll and Class Codes: The Base Rate Drivers is worth the time.

Stability is the quiet lever. Underwriters like predictable payroll and predictable loss patterns. If your payroll swings hard from year to year, the cycle hurts more. The companion post on payroll volatility and workers comp pricing shows why.

Safety programs are another quiet lever. They do not eliminate the cycle, but they can keep you out of the worst tier when the market tightens. Underwriters reward companies that can show a consistent reduction in frequency.

If you need a short-term lever, consider how you document jobsite controls. Clear documentation can separate you from the pack when underwriters are looking for reasons to say no.

If you are working with a broker, ask for a market snapshot. Knowing which carriers are tight and which are open can save weeks of unproductive shopping.

Simple decision rule

In a tight cycle, assume you will not out-shop the market. Focus on control. Lower frequency, tighten documentation, and keep payroll clean.

Next step

Pick one lever you can control this quarter and fix it. Underwriters reward stable patterns more than one-time changes.

If you can show two clean quarters, mention it on every quote.

In a tight cycle, small proof beats big promises.

Patience helps, but proof helps more.

Keep notes on what improved.

That record helps every renewal.

Minnesota note: claim patterns and contractor timelines vary by county, so Twin Cities experience isn’t always a perfect proxy for outstate Minnesota.