Construction companies face a sharp rise in insurance costs, with premiums now taking up about 6% of total project budgets for major builders. Climate-related losses and inflation are driving these increases, pushing companies to adopt technology tools to manage compliance and reduce risk.
Nyasha Gutsa, co-founder and CEO of Billy, a construction insurance and compliance platform, has closely monitored these changes. While developing financial tools at Procore, Gutsa noticed a gap in how construction projects handle insurance compliance across multiple parties.
He highlights a persistent problem: every project participant needs insurance, but no software directly connects all stakeholders. “Everybody on a construction project has insurance, and a third-party insurance broker typically manages it, but there is no software that connects those parties,” Gutsa says.
Billy aims to streamline workflows between construction and insurance, reducing errors and inefficiencies.
Hidden Costs of Manual Compliance
Construction insurance requirements are complex and go beyond basic coverage. Each project involves multiple stakeholders, including lenders, owners, and dozens of subcontractors, each with specific insurance obligations outlined in contracts.
Verifying that each subcontractor’s insurance meets these requirements is a major task.
For example, a painting contractor may be hired for a 30-story building. Their policy may cover commercial work and vehicles, but it restricts work above 75 feet. If the general contractor misses this detail and a painter is injured at height, the insurer may deny the claim. The liability then shifts to the general contractor, who must cover costs because the subcontractor’s policy did not meet contract terms.
This risk shows why insurance compliance is a top priority. General contractors must verify that each subcontractor’s insurance meets project requirements, a task that traditionally involves manual reviews of certificates and policy documents. Mistakes can lead to major financial exposure if claims are denied.
Market Pressures on Premiums
Inflation has sharply increased replacement costs for construction materials and equipment. Vehicles like the Ford F-150, once under $30,000, now cost nearly $60,000. As costs rise, insurers increase premiums to cover higher potential payouts.
Climate risks have also increased costs. Severe weather such as hail, wind, and flooding can destroy months of progress in hours, requiring costly remediation.
“Cleanup and rebuilding expenses push project costs higher and raise insurers’ risk profile,” Gutsa says.
These pressures have changed market dynamics. Insurers can now select which clients to cover, as limited capacity prevents every builder from getting the coverage they need. “You don’t dictate the market anymore, because insurance companies do. They pick you,” Gutsa explains.
To regain some control, many mid-size and large builders are forming insurance captives — essentially their own insurance companies — in jurisdictions such as Bermuda or the Cayman Islands. This approach lets them manage costs and tailor coverage but requires significant resources and expertise.
Regional Insurance Challenges
Insurance challenges are severe in states such as Florida and California. Weather risks and regulatory limits have caused some carriers to leave the market. In California, strict regulations cap insurer charges, making it hard to cover rising risks without losses.
Remaining carriers raise prices to compensate. This increases construction costs and makes real estate more expensive for buyers.
In the Northeast, typical home insurance covers about $180 per square foot for replacement, while actual construction costs in New York are closer to $300 per square foot. This gap exposes property owners and builders to significant potential losses.
Tech Meets Human Expertise
Billy’s platform reduces compliance risk by automating insurance verification while keeping human oversight.
“We use AI as an efficiency tool with a human in the loop,” Gutsa says. Many insurance documents include language that automated systems cannot fully interpret, and construction projects often have unique coverage needs.
This hybrid approach lets routine compliance checks be completed quickly, while experienced professionals make nuanced decisions. For example, a cleaning crew may not need the same high coverage limits as a contractor working on a high-rise exterior.
Managing Compliance Costs
Many contractors still underestimate the true cost of compliance management. While general contractors often allocate company-wide insurance expenses across projects, they may not account for the staff time and administrative effort required to manage hundreds of subcontractor documents and certificates.
“You lose money when staff manage paperwork from subcontractors,” Gutsa says. Some contractors now bill project owners for compliance management costs, plus a markup, using platforms like Billy. This ensures compliance work is recognized as a legitimate project expense rather than absorbed as overhead.
Treating compliance management as a direct project cost improves transparency and encourages investment in tools and processes that reduce risk and boost efficiency.
Future Market Outlook
“Each construction project is unique. No two buildings are the same,” Gutsa says. Managing this complexity requires both technology and human judgment.
The move toward digital compliance management is not just about streamlining paperwork. It reflects the need for more robust risk controls as insurance becomes a larger share of project expenses. Builders must demonstrate that every aspect of compliance is actively managed and documented.
For developers and real estate investors, understanding the new insurance landscape is essential. Compliance gaps can lead to unexpected liabilities or denied claims. Companies that invest in better compliance management and strategic risk assessment are better positioned to secure coverage and keep projects on track.
Insurance is no longer just a box to check. It shapes budgets, timelines, and even the feasibility of new developments. Efficiently managing compliance — and proving it to insurers, lenders, and owners — will increasingly determine which construction companies thrive.
About the Expert: Nyasha Gutsa is the co-founder and CEO of Billy, a construction insurance and compliance platform that helps builders streamline workflows and reduce risk. With experience developing construction financial tools at Procore, Gutsa specializes in integrating technology and human expertise to manage complex insurance compliance challenges.
This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.
