Years of hardening market conditions for Property and Casualty Insurance have instilled multiple best practices throughout a significant segment of the construction industry:
- Heightened focus on risk management;
- Maintaining detailed records of risk management policies, practices and results;
- Timely filing of comprehensive applications and renewals.
Now, frankly, it’s time for the insurance industry to do more to reward the efforts of those who engage in these practices. Agents and brokers have worked hard to adapt and respond to the challenges caused by the hard market — rising rates, reduced capacity and stricter underwriting scrutiny, to name a few — but we have to continue to improve on providing the services that enable construction industry best practices.
In short, we have to strengthen our partnerships with our construction industry clients.
P&C Market Outlook for 2023
In December, Alera Group released our 2023 Property and Casualty Market Outlook report, sounding a note of qualified optimism for the construction industry: “Competition is returning to the marketplace. Insurers are willing to compete for accounts that meet their underwriting appetites.”
We cited these as key factors influencing the market:
- Contractors will need to show resilience and creativity in managing uncertainty. Construction projects are increasingly complex, and the expected time frames to complete them are shortening. Building materials costs, inflation, skilled labor shortages, a weak supply chain and the difficulty of forecasting budgets and timing are risks for insurers. Clients with strong risk mitigation strategies will secure the best terms from insurers.
- Not all clients will experience improving conditions. While pricing and availability will likely improve for the sector, contractors with challenging risk profiles due to poor loss histories, high-hazard operations or weak risk control programs will continue to face unfavorable market conditions.
- Training and job site safety will be top priorities. As contractors struggle with a shortage of skilled workers, insurers will look closely at the policies and procedures contractors have in place to help reduce the risk of injury and project delays.
- Increasing use of technology can reduce risk. Technologies such as smart hard hats that monitor worker condition and drones that can perform dangerous tasks remotely will improve worker safety. Building Information Modeling (BIM) can help diminish risk and boost transparency by allowing all stakeholders to see how project parts will fit together, from building materials to HVAC systems to landscaping. BIM can reduce costly revisions and delays by detecting problems and solutions digitally before projects begin.
- Cyber risk is a factor. Contractors rely on multiple digital systems, software and communications devices spread across numerous job sites and offices. Many people have access, from employees working remotely to vendors and subcontractors. This increases vulnerability to cyberattacks. Firms often rely on consumer-grade antivirus protection and lack the IT security needed to protect their data.
- Water intrusion claims are a growing area of concern. Water damage is a leading cause of losses on construction sites. Water intrusion can lead to project delays, mold, construction defects and damaged-materials claims.
- Builder's Risk coverage may not always be adequate. Between the high cost of building materials, general inflation and project delays, the cost to rebuild may be considerably higher than when the original guaranteed maximum price (GMP) was established.
As we move forward in 2023, Alera Group is committed to working more closely with construction industry organizations to help them operate their businesses more safely, efficiently and profitably.
How We Can Work Together
In last year’s follow-up to Alera Group’s 2022 P&C Market Outlook, we noted that the best insurance professionals “collaborate with clients on safety programs, policy updates and detailed applications, all while designing customized programs that typically include complex layers of coverage.” That remains true.
But we can do better. Here’s how:
Beginning by talking with each other more frequently about all aspects of the client’s business. Many clients regard discussions with their agent or broker as a necessary evil, rather than a constructive aspect of a true partnership. We want to hear about your company’s revenues, your pitfalls, your concerns – and we love it when clients contact us to share what’s going on in their business. Our goal is to provide guidance, services and products that make us part of your success.
By ensuring that you’re using all the relevant resources available to you. Working with insurance carriers, your agent or broker can provide you with tools and services including:
- Worker safety onboarding and training;
- Specialized training for skilled labor, such as crane operators;
- Early intervention strategies for identifying injured workers’ likelihood of chronic pain;
- Assessment of driver fleet risks;
- Technological tools for measuring worksite risks such as potentially damage-inducing ground vibration;
- Analysis of contractual risk.
By exploring alternatives. As Insurance Journal recently reported: “Amid a historically hard construction market, middle and large-sized companies looking for alternatives to traditional insurance may turn to captives to find stable pricing and greater capacity.
“Captives, licensed insurance companies owned by their insureds, carry appeal to construction businesses that have invested lots of capital into risk management and want to have more input in claim prevention and loss control,” Insurance Journal continued. “Captives also allow companies to put together several lines – typically workers’ comp, auto liability, and general liability coverage – into one program.”
At Alera Group, we work with organizations to manage the overall cost of risk — not just what they pay in premiums — and create opportunities for significant savings over time. Whether the best solution for your organization is a captive or a restructuring of retentions and deductibles within a traditional property and casualty program, your agent or broker should work with you to:
- Identify your risks and how best to mitigate them;
- Ensure that your bottom line is protected and your coverage continues to meet your organization’s needs over time;
- Enable you to concentrate on growing your business without worrying about financial loss from insurable risks.
For a broader look at strategies for navigating insurance market conditions, read the 2023 Property and Casualty Market Outlook, where you’ll also find valuable information on factors driving the current P&C market, as well as analysis by industry and lines of coverage. To obtain the report, click on the link below.
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About the Author
Kurt Sokolowski, CIC
TriSure, an Alera Group Company
As a senior partner at TriSure and a Certified Insurance Consultant (CIC) with more than 18 years of industry experience, Kurt Sokolowski works primarily with general contractors, subcontractors and property managers and developers to provide insurance and risk management solutions.