Gary Kaplan, leader of XL Catlin's North America construction unit, says the carrier enjoys a high renewal rate. “We find that most construction companies are looking for carriers that will meet their needs and be their long-term partners,” he adds.

“It's highly competitive, regardless of region of the country and segment of the construction industry you're dealing with,” says Andrew Murray, chief underwriting officer for Starr Companies' construction unit. Renewal rates, he says, are generally flat to low single-digit reductions for accounts with acceptable loss history. Early renewal targets and commitments have become more prevalent over the past year, he adds, “making new business even more difficult to obtain.”

Related: Technology revolutionizes construction risks

While the market is generally stable, Murray adds, “there appear to be outliers on almost every third- and fourth-quarter deal we see, where the rest of the market will be within 5% of each other but then there will be one that is 20% lower or more.”

Distracted drivers talking or texting are a significant cause of loss for contractors. (Photo: Shutterstock)

Avoiding the pitfalls

There are several key contributors to claims in the construction insurance space. One of the most significant is auto-related losses, notes Rick Keegan, president of construction at Travelers.

“We see a significant amount of large losses in construction as the result of auto accidents. Because many auto accidents also involve injuries to a contractor's employees, accidents are a significant cause of workers' compensation claims for a contractor,” Keegan explains.

One of the biggest causes, Kaplan points out, is distracted drivers talking or texting on their phones. To reduce risk, companies can employ software that can, say, shut down a phone while a vehicle is moving. “We've been able to show through loss history how much of an impact that can make in terms of decreasing losses,” he adds.

Bodily injury claims are still the largest category of loss in construction, whether the injury is to an employee or possibly another contractor on the job, says Brewer. “Another significant exposure is property damage claims,” he notes. “These can trigger coverage under General Liability, either for premises and operations or, in the case of construction defect, completed operations.” He adds that there can also be significant defense costs associated with liability claims, as construction claims can be complicated and it can be difficult to establish financial responsibility.

“In New York, bodily injury claims alleging violations of the Labor Law drive significant general liability losses, with the average claim ulti-mately costing between $3 and $4 million dollars,” Murray points out. “Construction defect is always a concern, and is especially so in particular classes of construction and geographies.”

One of the most significant contributors to claims is increased risk for on-the-job injuries as a result of shifting employee demographics, says Keegan. He has seen a clear increase in construction workplace injuries and workers' compensation claims due to inexperienced workers.

Related: Builders risk insurance

“The changing workforce and need for skilled construction labor is a top concern we continually hear about from our customers,” Keegan says. “The issue for contractors is twofold: There is a shortage of skilled labor, requiring contractors to sometimes hire workers who don't have as much experience, while at the same time there is an aging construction workforce. The combination substantially changes the risk profile for a contractor.”

The issues contractors are dealing with include an aging workforce and a lack of skilled labor. (Photo: Shutterstock)

The most obvious impact, Keegan continues, is an uptick in job-site accidents resulting in employee injuries. “Our statistics show that more than 50% of all construction workplace injuries occur within the first year of employment,” he notes. “We see in those cases that worker inexperience and unfamiliarity with construction site hazards lead to a significant increase in accidents, as contractors try to acclimate new workers to the industry and to the unique risks that exist on a construction job site.”

Related: 10 steps to mitigating drone risks on construction sites

Industry data also show that more construction workers are working longer before retirement. An aging workforce presents additional challenges to contractors. “It often is more difficult to rehabilitate older employees post-injury, and they may be less likely to return to work. The result can be extended disability periods, increased medical costs, and added pressure on a contractor's workers' compensation costs,” Keegan adds.

“The shortage of skilled labor and experienced project managers may cause the cost-to-build to rise, delivery to slow and job sites to become harder to control and to run safely,” Brewer cautions. “With the rebounding economy, the commercial construction market is growing, which requires higher skill than many residential projects. Enhanced onboarding and skill development programs will be critical for contractors, as well as identifying ways to keep their more experienced workers.”

With the immediate need for rebuilding the damage caused by recent hurricanes in Puerto Rico, Texas and Florida, there is a spike in demand for labor to get people where they need to be. “Many companies will be adding new people on the fly as demand surges, and they need to make sure they get it right,” says Kaplan.

Best practices include conducting pre-hire medical exams to make sure new people are physically capable of doing the job; creating an in-house “mini-university” that teaches all the necessary safe work practices (using personal protective equipment or fall protection, for example); holding a two-week orientation period for new hires; and having experienced employees mentor new workers.

Contractors often face the risk of accidentally striking buried pipes that were undisclosed. (Photo: Shutterstock)

Environmental exposures galore

Obtaining sufficient coverage for environmental exposures is critical but can be difficult, because every piece of property is unique. On the other hand, most projects do have several factors in common.

Related: Working with environmental consultants: What risk managers need to know

“Construction sites are different, but they all have exposure to air and surface water or soil and ground-water,” says Keegan. Frequent exposures include contaminated runoff from construction sites, accidental striking of an underground pipeline or tank, exacerbation of current conditions at a site, and mold resulting from water intrusion.

As a result of increased awareness around construction-related environmental risks, more construction contractors now include a requirement to maintain pollution liability coverage for jobs, Keegan adds.

The key is understanding the building site, Kaplan says. Is it a greenfield (never developed) site or a brownfield (formerly developed and possibly contaminated) site? Knowing what's underground is really important to calculating risk. For example, there may be underground storage tanks that hold hazardous chemicals that must be removed and disposed of properly.

Related: 10 Steps to mitigating drone risks on construction

There must always be a thorough pre-construction review, says Murray. “The primary exposure on major new projects is the condition of the site pre-construction. With this exposure being so significant, virtually no project is going to be able to obtain financing without having had full environmental due diligence conducted — including, at the least, a full Phase I study.”

The Phase I results, as well as any Phase II remedial efforts, ongoing monitoring requirements, and ability or lack thereof to obtain EPA or other governing body notices of release, drive the extent to which specific coverage is warranted — including needed terms and conditions as well as advisory limits.

Regardless of the labor marketplace, type of project, and particular environmental risks they're dealing with at the moment, contractors must constantly ask how they can reduce exposures. It's a process of continuous safety improvement.

“One of the questions I am asked most frequently by contractors is how they can make themselves a 'better risk,'” Keegan says. Having a robust safety culture, he adds, is essential for any contractor that wants to be successful in the long term. And that begins at the top.

“The culture needs to start at the senior levels and always be on display, backed by a system of accountability and reward that is consistently applied,” Keegan stresses. “It should be an integral part of every hiring decision, to help ensure that workers have a personal commitment to protecting themselves, their co-workers and the company's reputation. The best contractors are never satisfied and are constantly analyzing their internal controls, operations and decisions to ensure they are always improving.”

Contractors appreciate agents and brokers who “speak their language” and understand their concerns. (Photo: Shutterstock)

Differentiation in a crowded market

In this complex construction insurance market, how can a carrier or brokerage differentiate itself to clients? It's all about understanding the needs, demonstrating expertise, and building solid, long-term relationships.

“When I think about the qualities of the most effective construction insurance specialists, I think of someone who is highly technical, has a passion for the industry, continues to develop his or her expertise to keep pace with a rapidly evolving industry, is solution-oriented, and invests the time to build long-term relationships. It's someone who is committed to working with a contractor to best position them for long-term success,” Keegan says.

“Contractors value technical expertise and prefer to work with insurance professionals who understand their industry and can develop solutions to help them manage risk,” he stresses. “In addition to technical expertise, construction is still a relationship-based business, so to be successful you have to be willing to invest time in building trust and credibility.”

Related: Expert: Beware Of Construction Insurance Scams

For a broker, Keegan explains, this means taking the time to understand a contractor's history, philosophy, values and short- and long-term business objectives. For an insurance company, it's important to recognize the issues that might be affecting customers and offer risk management advice and solutions to help make their jobs safer.

Solid listening skills are likewise critical. “What really makes a difference in this marketplace is someone who listens better,” Kaplan says. “We train our people to really listen, ask the right questions, respond to those, follow up and do what they've committed to do. This builds a high level of trust.”

“Transparency in the business relationship is key,” Murray adds. “Also, there are less-tangible things, including being consistent in the underwriting approach with respect to risk selection, pricing and coverage terms.” The foundation beneath all of these, however, is the carrier truly understanding the business of its insureds. “Each contractor is materially different, and taking the time to really understand the drivers behind their individual operations and conveying that understanding to them in meaningful ways really sets a carrier apart from others.”

See also:

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