According to Hawai‘i’s Department of Business, Economic Development & Tourism Q4 2025 projections, the construction sector is expected to be a key contributor to Hawai‘i’s economic growth throughout 2026. However, there are multiple factors that could result in increased surety bond and insurance rates as well as higher construction project costs overall.
Terence Young
Tricia Miyashiro, Atlas Insurance Agency executive vice president of Legal and Compliance and Surety, says “the 2026 infrastructure cycle is expected to be a major test of contractor financial discipline.”
Terence Young, Rider Levett Bucknall principal, says interest rates, inflation and tariffs continue to “push rates higher across the lending landscape.”
Although most construction loans typically don’t operate in direct conjunction with federal interest rates, they are indirectly impacted by the economic conditions shaped by the Federal Reserve, explains Young.
“Policy-driven uncertainties — such as tariffs, trade shifts and regulatory compliance — [continue] to raise operating and project costs,” says Young.
Rates are higher across the board, which Young says can be partially attributed to global economic conditions and geopolitical instability.
“Interest rates increase the cost of borrowing, reduce project feasibility, limit access to capital and slow development. Inflation raises costs for materials, logistics and labor,” Young continues.
“The net effect is a financially constrained environment where margins are tightened, projects are delayed and the risk profile is elevated at every construction decision.”
Eric Domingo
Bonding Challenges
The cost of projects has risen overall, including a rise in bonding and insurance costs.
“The dollar value of construction bonds is increasing due to inflation, higher labor and material costs and tariffs,” says Miyashiro.
Because Hawai‘i’s construction costs surpass the national average, contractors may hit their bonding limits faster. As such, Miyashiro says “contractors must secure larger bonds, tightening their overall capacity.”
Clarence Regalado, Alliant Insurance Services assistant vice president, agrees, saying, “the cost of doing the same scope of work a couple of years ago is now significantly more.”
Eric Domingo, senior Bonding & Credit analyst at HPM Building Supply, says, “uncertain trade policies and tariffs on foreign material could affect the cost of building materials and ultimately the cost to build. It is also important to factor in potential price uncertainty in freight and transportation costs.”
Jadine Pereza, Honsador Lumber LLC bonding supervisor, agrees that rising material costs and tariff-related inflation are challenges for general contractors, but also notes that “stricter bonding qualifications” may be an additional challenge.
Pereza also says the inability to obtain subcontractors capable of completing the work in a timely manner can cause delays and increase project costs, which ultimately can affect both current and future bonding qualifications.
Mitigating Risk and Securing Bigger Bonds
Economic uncertainties mean that a sufficient combination of liquid and capital assets are important requisites for surety providers.
“From a financial perspective, sureties favor strong levels of equity, working capital and access to funds to support a contractor’s overall backlog,” says Regalado.
Miyashiro says “contractor quality and consistency” is the best way to secure better and bigger bonds.
She also lists the following as key drivers for securing stronger bonds:
- CPA (certified public accountant) ‑prepared financial statements with strong working capital
- Consistent profitability and clean bond loss history
- Depth of management and operational continuity
- Disciplined growth and realistic backlog
- Long‑term, transparent surety relationships
The colloquial “Three C’s” of surety underwriting — character, capacity and capital — also continue to be key determinants of a contractor’s bonding capacity.
“Underwriting goes beyond the financial statements — underwriters also consider the contractor’s ability to perform, the risk of the work performed and the contract terms, as well as the integrity of the owners,” says Regalado.
Diligent documentation — including detailed job costing and accurate project tracking — as well as transparent contracts can also help mitigate risk and improve bond capacity.
“Longevity, consistent job performance, strong financial position, accurate interim financial statements and high-quality financial statements are keys to securing favorable premium rates,” says Regalado.
Pereza says some less-frequently mentioned ways for contractors to mitigate risk in contracts are by “includ[ing] a price escalation clause,” “utiliz[ing] allowances on volatile materials” and “obtain[ing] signed Change Orders prior to starting the work.”
Rising Premiums
Bonding and insurance are separate but interconnected instruments of risk management and protection.
Miyashiro explains that “insurance transfers accidental risk [while] surety evaluates whether the contractor can perform,” but they remain interconnected.
Inflation, labor and material costs and tariffs also affect insurance, increasing the cost of repairs and upping premiums.
“Some policies are based on receipts. When your projects cost more to complete the insurance costs are going to be higher,” explains Sue Savio, president and owner of Insurance Associates Inc.
Savio adds that “umbrella policies are increasingly more important with rising project costs. A major claim can make a big difference.”
“When you have claims, your insurance costs are going to increase and that is going to give your competitors an advantage over you while increasing your costs to complete the same job,” says Savio.
Savio also adds that rising litigation costs and a shrinking pool of available insurers can raise insurance premiums or extend policy procurement timelines.
Partnerships for Protection
Despite the variable nature of the current economic and construction landscape, Savio and Miyashiro emphasize that insurance and surety are strategic partnerships.
Transparency and financial discipline across all projects make for an attractive preferred-risk contractor, which can both directly and indirectly protect a contractor’s profit margins, making them an attractive candidate all around.
Miyashiro says that “contractors who treat safety, financial discipline and transparency as strategic priorities consistently pay lower premiums, secure higher bond capacity [and] gain preferred status with owners and lenders.”
Savio’s advice to contractors is “take safety seriously, work with your carrier and agent for safety resources.”
“Look at your agent as a partner and a resource; we want you to be successful,” Savio says.
Surety bonds and insurance can both reduce the impact of unpredictable market shifts and unforeseen risks. Bring in surety and insurance professionals early and maintain open communication.
“In Hawai‘i’s high-cost, logistically complex construction market, contractors who combine strong insurance programs, disciplined operations and transparent surety relationships are best positioned to control risk, maintain bond capacity and secure favorable pricing,” Miyashiro concludes.
