The National Federation of Builders has called on the government to underwrite part of its members' insurance risk following reports of premium rises of up to 500%.
The National Specialist Contractors Council found increases of up to 300% when it surveyed its 6000 members on the insurance crisis.
Reasons cited for the premium hikes include the 11 September terror attacks in New York and the changing insurance market.
NFB chief executive Tony Maynard said firms would collapse if insurers maintained the higher premiums or abandoned the industry in favour of lower risk sectors.
"The situation is growing more critical by the day and could sound the death knell for many contractors," he said.
Maynard said he did not want the government to bail out contractors but wanted government support to help restore confidence in the construction sector.
Welsh-based contractor and NFB member Rushar has been told there are only two insurers willing to quote on high-risk areas such as scaffolding, roofing and steel erecting. Managing director Dave Haarhy said his cover this year had risen to £60,000 from £16,000 last year. "Initially we were quoted £88,000 – a 550% increase on last year," he said.
NSCC chief executive Suzannah Nichol said an accurate measure of the problem could not be made until she had all the survey results. But she said: "We have already had some horror stories, including reports of 300% premium increases."
Nichol said several reasons had been cited by insurers for the increases. These included the claim that premiums had been too low for many years and a blame culture in the UK insurance industry.
The National Federation of Roofing Contractors said the average rise in premiums reported by members was 161%.