Implications of Recent Legislation on Property Insurance for Construction

Overview

On July 4, 2025, a major piece of legislation was signed into law, known commonly as the "One Big Beautiful Bill" (OBBB). With its passage came sweeping tax, regulatory, and fiscal policy reforms that will have an impact on virtually every component of the global economy. At its core, the OBBB is intended to promote the American manufacturing sector through various mechanisms such as tax credits, bonus depreciation, research and development incentives, and support for domestic innovation.

The insurance industry, still reeling from massive upheaval in the wake of the COVID-19 pandemic, newly enacted tariffs, and devastating natural disasters, is grappling with how to interpret the OBBB and its anticipated impact on property values as well as the broader market.

More Projects—But at What Cost?

The general consensus among analysts and experts in the insurance market is that the OBBB will lead to elevated industrial construction costs. The Tax Cuts and Jobs Act, passed in 2017, first introduced the ability for companies to recapture significant bonus depreciation with the hopes of stimulating new manufacturing, logistics, and energy construction projects. Bonus depreciation, in essence, allows for the immediate deduction of the cost of a qualifying asset, such as equipment, machinery, and improvements, as opposed to depreciating over their anticipated economic life.

In addition to the reinstatement of 100 percent bonus depreciation, the OBBB provides further incentives for investment in industrial construction by doubling the Section 179 Deduction, which allows businesses to deduct the full purchase amount of "qualifying equipment" to $2.5 million. ¹ As a result, the accelerated tax savings, improved profitability, and offset of early project risks have set the stage for greater investment in new industrial development. While new industrial project development is expected to benefit from the tax and balance sheet incentives embedded in the OBBB, supply and demand imbalances could negatively impact both short- and long-term costs. The byproduct of increased development is a limited supply of construction materials and labor constraints. Further, the cost of labor has increased dramatically in the years following the COVID-19 pandemic, specifically in the construction sector. Based on data collected by RSMeans, the cost of construction labor has increased 25 percent from 2020 to 2025. ² Direct costs, such as materials and labor, flow into replacement cost new estimates that are the basis for most insurance premiums of complex properties.

The Clock Is Ticking

Energy projects (specifically renewables) that have historically relied on government subsidies and tax credits now have an accelerated timeline to initiate new constructions as outlined in the OBBB. The bill stipulates that solar and wind projects that break ground prior to July 4, 2026, will avoid the deadline to be placed in service no later than December 31, 2027, to receive federal credits and incentives. However, projects that are not under construction by July 4, 2026, must be in service no later than the end of 2027 to qualify for the credits. The time horizon for projects of this nature can range from 3 to 6 years to completion. Without federal subsidies and tax credits, many of these projects face a difficult path to profitability.

The likely result of the new time horizon will be a rush to complete these projects to avoid missing out on credits and incentives. A rush of new development could lead to elevated raw material costs such as steel, electrical components, and other scarce goods. The OBBB also imposes penalties on the procurement of foreign goods, particularly goods sourced from China. The OBBB stipulates that projects that rely too heavily on Chinese equipment could be subject to taxation or restrictions. ³ Increased costs as a result of the anticipated rapid increase in new project development is a key factor in determining insurable values.

Buy American … or Else

A core tenet of the second Trump administration is promoting domestic manufacturing and decreasing America's reliance on foreign goods and services. In addition to the OBBB, new tariffs have been levied on virtually every foreign nation doing business in the US. As a result, construction projects that previously relied heavily on cheap foreign goods are seeking more expensive domestic alternatives.

American manufacturers are scrambling to meet the demands of the market, which has led to increased prices and limited supply. For example, steel is the single largest input as a raw material cost for the construction of new plants, warehouses, commodity terminal storage, and refineries. As of the writing of this article (mid-August 2025), the cost of American hot-rolled coil (HRC) steel averages between $850 and $900 per ton, while Chinese HRC is priced near $410 per ton. ⁴ The following chart is a striking visualization of the global steel market and the cost of domestic steel.

In short, the renewed emphasis on supporting American manufacturing while simultaneously imposing tariffs on foreign goods should be considered in replacement or insurable cost new estimates.

What's Next?

The OBBB is still in the very early stages of adoption, interpretation, and implementation. Like many previous pieces of federal legislation, there will be both positive and negative outcomes. While most are in agreement that the OBBB will result in a substantial increase in new construction projects and industrial development, the impact on profitability and cost is less clear. It is vital that project managers, insurance brokers, and other stakeholders be educated on the OBBB and the evolving landscape to safeguard proper risk management.