The cost of uncertainty: How economic shifts are driving up Construction Insurance in 2025

The year ahead presents huge opportunities and significant risks for the UK construction industry and consequently the UK construction insurance industry. On the one hand, there’s constant talk of growth. The new government has introduced ambitious house-building targets and are overhauling planning laws to ease development restrictions. But on the other hand, developers are grappling with inflation, supply chain issues and skills shortages, bringing increased risk and higher insurance costs.

Of course it’s not just the construction industry that’s heading into 2025 with a degree of caution. With Donald Trump taking over the White House once more, and widespread tariff increases likely to impact trade across the globe, the true outlook is difficult to predict.

One thing that is certain, however, is that demand for insurance products, that offer stability and financial security, will increase – even if they come at a higher cost.

So which economic factors are impacting the cost of construction insurance, and how will this affect brokers in the year to come?

Persistent Inflation: A Lingering Challenge for Construction

Although some of the inflationary pressures that construction firms have faced over the past couple of years are easing slightly, the cost of raw materials and fuel are still high and expected to rise further in 2025.

Supply fluctuations in essential materials, like timber, glass and steel, were a major problem in the post-Covid years, and the situation is still highly unstable. Indeed, the tariffs Trump is imposing on the USA’s neighbouring countries and the EU could result in further supply chain issues.

These supply interruptions, environmental regulations and growing demand have combined to create the perfect storm for 2025. With no sign of this issue abating, insurance premiums are expected to increase, alongside demand.

Economic Volatility is Escalating Construction Risks

Construction firms find it difficult to accurately and competitively bid for projects during times like these. The lack of certainty over the availability of raw materials, the increased reliance on imports, higher freight and transport costs, fuel price fluctuation and skills shortages all add up to a very unstable outlook for the industry.

All UK businesses are facing unprecedented levels of financial uncertainty, largely due to macro-economic factors beyond their control. But construction firms need to price and deliver large-scale, long-term projects and deliver them to budget and on time, taking on large levels of risk.

In this climate, demand for insurance products, ranging from business interruption insurance and professional indemnity insurance to surety bonds and insurance-backed guarantees, will rise. Construction firms and their clients will need to protect themselves in the event that projects are delayed or unfinished, with the rising demand driving up premiums.

Skills Shortages and Soaring Wage Costs Compound the Problem

The construction industry faces a well-documented skills shortage in 2025, as several factors combine, intensifying the challenge. Firstly, the workforce is ageing, with many skilled people approaching retirement age. Then there’s the ongoing impact of Brexit, with fewer EU workers available. Most concerning, perhaps, is the apathy among British young people towards joining the construction workforce. Protrade’s Construction Apprenticeship Report 2024, measured a 5% fall in the take-up of construction apprenticeships last year, which is a concerning statistic.

On top of these skills shortages, wages for staff are also increasing significantly this year with the increase in Employers National Insurance introduced by the Labour government. Arcadis’s recent Stuck in the Middle report predicts that the NI rise, which comes into effect in April 2025 will add up to 1% onto the cost of construction projects.

The knock-on impact will be an increase in demand for products like professional indemnity insurance, DSU cover and employers’ liability insurance. Insurance costs incurred are expected to increase alongside the risks involved with taking on less experienced workers. Construction firms who are reliant on under-qualified workers will take up latent defects insurance to protect themselves in the event that future quality issues are detected, requiring compensation.

Overall, the construction industry will be moving into 2025 with mixed feelings. Although the demand for residential and commercial development is extremely healthy, delivering these projects has never been more challenging. Brokers who offer a wide range of innovative construction insurance products, that mitigate these new and emerging risks, provide a lifeline.
Construction businesses that are correctly insured can face the future positively, with the agility needed to rise above the competition. Brokers must be proactive in offering tailored insurance solutions to help their construction clients reach their potential in 2025.

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