Insuring Construction's Complex Risks
Construction is a complex sector to insure. It’s inherently a risky industry given the nature of the work, especially with increasingly innovative and complex designs. Recent changes in the industry have also added risk management concerns to its current risk profile.
Despite those challenges and the risky profile, the construction industry’s importance in the US economy is undeniable. According to U.S. Census Bureau statistics, the construction industry saw over $1.7 trillion in revenue in 2016. There were 729,345 construction companies employing over 7.3 million people. And the good news is that the industry has emerged out of its recent slump and is showing continued signs of growth. In fact, a recent Dodge Data & Analytics survey predicts a 5 percent growth in construction startups in 2017.
Managing the construction industry’s risks may be more challenging, but as important as ever.
Construction industry demographics are changing. Like many industries, the construction industry is feeling the impact of an aging workforce. The accumulated skills, safety habits, and maturity of older workers set a good example for younger workers. Losing that experience poses risks ranging from jobsite safety to project management exposures. But older workers also present risks of their own, including an increased likelihood of serious injury.
Also consider that in both private and public construction, many workers are Spanish speakers. That is not surprising when we consider that the fastest-growing demographic in the United States is Hispanic/Latino. According to the U.S. Census Bureau, residents of Hispanic origin represented 16.4% of the total U.S. population in 2015. Workers of Hispanic origin accounted for 13.4% of all labor in construction, extraction and maintenance in 2013, the most recent year for which data are available. Language and cultural differences can present significant safety risks for U.S. employers with non-native English-speaking workers. On construction sites, those challenges are especially acute. A combination of basic language and cultural training for both managers and workers will help them better understand each other and work together to create a safer job site.
Not Immune to the Opioid Crisis
According to OSHA statistics, one in ten construction workers is injured every year. Following an injury, prescribing opioids is a common pain management practice. Their use also poses a risk of potential abuse or misuse. Construction companies are not immune to their injured workers becoming part of the crisis. In fact, the industry has to work hard to addressing some unique challenges in addressing opioid abuse.
First, many in the construction workforce are independent contractors or union members. Construction firms have to be aware of their rights and obligations as well as those of their contracted employees. Rules may differ by state as well as by union. There’s too much at stake for the construction industry to ignore the impact that opioids and other prescription drugs can have on the health of their injured workers and the jobsite safety risks they pose. This crisis requires labor unions and company management to work closely together to determine policies resolve grievances and address workplace issues including drug testing.
" Addressing construction’s complex risks requires building a comprehensive insurance program tailored to an individual contractor or project."
New Tech Risks
The construction industry’s use of new technologies like Building Information Modelling (BIM) and drones also poses new exposures.
Using increasingly sophisticated 3D modelling tools in a shared environment, all of the participants in a project can create and refine a detailed digital model of the structure before erecting it in the real world. Use of BIM raises a lot of liability questions. Will greater collaboration among the various participants in a building project reduce risks and lead to lower insurance premiums? Or will BIM increase risk by blurring traditional responsibilities and make it harder to apportion liability when something goes wrong? And what about increased cyber/IT risk, especially as more and more BIM applications are hosted in the cloud? Or safeguarding intellectual property rights when working in a shared environment? All of these questions are largely unanswered but as use of BIM continues, contractors are looking for ways to manage the risks it poses.
More contractors are also using Commercial UAVs (or drones) on construction sites, which raise questions about privacy issues as well as coverage for liability. The standard commercial general liability (CGL) policy often excludes “ownership, maintenance or use” of an auto, aircraft, or watercraft. Contractors thinking of using UAVs should consult with their broker and/or carrier to see if a UAV would constitute an aircraft and thus trigger the exclusion. So if a contractor’s use of a drone results in property damage, will a CGL policy cover it? It depends. The solution may be using a properly trained and insured drone pilot.
Addressing construction’s complex risks requires building a comprehensive insurance program tailored to an individual contractor or project. Many industry leaders have found it beneficial to rely on one insurer to provide all lines of coverage. If a claim is incurred, for instance, there is no 'gray area' with coverage clarity and certainty. Although, because of the complexity of construction risks, very few insurance carriers have the ability to comprehensively address construction risks.
Today’s construction companies need to build a comprehensive insurance program that includes primary and excess casualty, professional liability, builders risk, subcontractor default, pollution insurance.
Managing the risks of public and private construction projects pays important dividends for people, businesses and communities. The construction business is a major contributor to, and indicator of, economic activity. In turn, the insurance industry plays a key role in assuring that contractors keep their projects on schedule, safe and profitable.
Gary Kaplan is president of XL Catlin’s North America Construction insurance business.