If you're running a construction business in 2026, you've probably noticed something: everything costs more. Materials are up. Labor is scarce. And your insurance? That's climbing too. Here's what's happening and what you need to know to protect your business without overpaying.
The construction insurance landscape has shifted dramatically. Tariffs on steel, aluminum, and lumber are pushing project costs higher. The industry needs nearly 440,000 additional workers just to keep up with demand. And when your project values increase and timelines stretch, your insurance premiums follow. But there's good news: the market is stabilizing, and if you understand what's driving these changes, you can make smarter coverage decisions.
The Cost Pressures Reshaping Construction Insurance
Let's talk numbers. Material costs have jumped 34% since December 2020. Steel prices are up 13% year-over-year. Aluminum has surged 23%. Current tariff rates are adding an estimated 9% to construction materials costs, which translates to about $10,900 per typical home and a 4.6% increase in total project costs across the board.
Why does this matter for your insurance? Because most construction policies use contract value as the rating basis. When your project costs climb, your insurance premiums climb with them. It's that simple. And when you factor in labor shortages driving wages higher to attract skilled workers, you're looking at compounding cost pressures that directly impact your coverage expenses.
The labor situation is particularly challenging. With 439,000 positions unfilled and 92% of construction firms struggling to find qualified workers, project delays have become routine. Forty-five percent of contractors report delays specifically due to workforce shortages. Those delays extend your exposure period, which means longer coverage terms and higher premiums.
Builder's Risk Insurance: What's Changed in 2026
Builder's risk insurance covers your project while it's under construction. Think fire damage to partially completed structures, theft of materials, vandalism, or weather damage. After years of market tightening due to catastrophe losses, 2025 and 2026 have brought welcome stabilization. More carriers are cautiously re-entering the market, and rate increases have moderated to 0-5% for well-managed projects with favorable loss history.
The U.S. builder's risk market is growing rapidly, valued at approximately $5.36 billion in 2024 and projected to reach $8.75 billion by 2033. Carriers are getting competitive for non-frame projects with clean loss records. Frame construction remains challenging, with carriers continuing to limit capacity and increase rates due to higher fire risk.
Here's what insurers want to see in 2026: data. Lots of it. Advanced modeling for catastrophe exposure, drone-based inspections, AI-driven risk scoring, and increasingly, digital construction management platforms that provide real-time project monitoring. If you can demonstrate strong risk management practices and provide detailed project data, you'll qualify for better rates. The carriers using digital twin technology and smart sensors to monitor projects in real-time are offering their most competitive pricing to contractors who embrace these tools.
One critical change: policy extensions have become difficult to negotiate. If your project runs long (and many do, given labor shortages), carriers now prefer to write a new policy at current rates rather than simply extending your existing coverage. Plan for this when budgeting your insurance costs, especially on multi-year projects.
Subcontractor Default Coverage: Your Safety Net for Labor Issues
With labor shortages stretching subcontractors thin, subcontractor default insurance (SDI) has moved from nice-to-have to essential. SDI protects you when a subcontractor fails to complete their work, goes bankrupt, or abandons the project. Given that nearly half of all project delays stem from workforce shortages, the risk of subcontractor failure has never been higher.
Here's how SDI differs from traditional performance bonds. Performance bonds involve three parties: the surety, the owner, and the contractor. SDI is a two-party agreement between you and your insurer. It typically covers up to 3 times a subcontractor's contract value, though it comes with deductibles and co-pay requirements. Premiums run 0.4 to 0.85 percent of total subcontract values.
The coverage is broader than bonding. SDI typically covers completion costs, correction of defective work, indirect losses including potentially liquidated damages, and your legal costs. Unlike bonds, which provide first-dollar coverage, SDI requires you to absorb the deductible, but it offers more comprehensive protection for the full spectrum of default-related damages.
To qualify for SDI, you'll need a robust subcontractor prequalification program. Carriers want to see that you're vetting financial stability, experience, and resources before awarding contracts. Generally, you'll need $50 million or more in annual revenue to qualify, though some carriers require $150 million or more in subcontractor expenses. Note that SDI cannot replace contractor bonds on federal projects under the Miller Act, but it's perfectly acceptable for managing subcontractor risk on those same projects.
Wrap-Up Insurance and Project-Specific Coverage
For large projects, owner-controlled insurance programs (OCIPs) and contractor-controlled insurance programs (CCIPs), collectively known as wrap-ups, can streamline coverage and reduce costs. These programs provide a single insurance policy covering all contractors and subcontractors on a project, replacing the patchwork of individual policies each sub would otherwise carry.
Wrap-ups typically include general liability, excess liability, workers' compensation, and sometimes builder's risk coverage. The main advantages: consistent coverage across all parties, potential cost savings through volume pricing, simplified claims administration, and elimination of coverage gaps that can occur when coordinating multiple policies. They're particularly valuable on complex projects where labor shortages mean you're working with unfamiliar subs or when project delays increase the risk of insurance coverage lapses.
How to Get the Best Coverage for Your Construction Business
Start by documenting your risk management practices. Carriers are rewarding contractors who can demonstrate strong safety programs, thorough subcontractor vetting, and proactive project monitoring. If you're using construction management software, drone inspections, or other technology to track project progress and identify risks early, make sure your insurer knows about it.
Get your loss history in order. Clean loss records are your strongest negotiating tool in today's market. If you've had claims, be prepared to explain what happened and what you've done to prevent similar losses. Projects with favorable loss history are seeing the most competitive pricing, particularly for non-frame construction.
Plan for cost increases in both materials and coverage. When budding projects, factor in the 4-10% insurance cost increases driven by rising contract values. Build contingencies for potential policy extensions if labor shortages might delay completion. And shop your coverage early, ideally 60-90 days before your current policy expires, to give yourself time to compare options and negotiate terms.
Finally, work with an insurance broker who specializes in construction. The market is complex, with significant variations by region (Florida has improved dramatically, Louisiana remains difficult) and project type. A specialist broker will know which carriers are competitive for your specific situation and can help you navigate the prequalification requirements for programs like SDI.
Construction insurance in 2026 is more expensive and more complex than ever, but it's also more important. With material costs up, labor scarce, and project timelines unpredictable, the right coverage protects not just your current project but your entire business. Take the time to understand your options, document your risk management practices, and work with specialists who can help you find coverage that fits both your projects and your budget.
