Growing and evolving risks for the insurance business
Construction sites are constantly exposed to a wide range of risks, including fire, equipment theft, slips and falls, and weather-related disruptions. The insurance industry must adapt to these expanding and new risks, making it a difficult industry to insure. With the increase in construction activities in the United States, exposure to risks has also increased. Builder’s risk insurance aims to safeguard buildings, structures, workers and raw materials, but does not protect against defective materials or workmanship. Contractors also face workers’ compensation challenges, especially in states like New York, where the Scaffolding Act can lead to significant legal costs. In addition, the frequency and intensity of natural disasters have increased, causing delays in project completion and increasing the demand for business interruption insurance.
Aging employees and lack of skilled labor
The construction sector is facing a change in the composition of its workforce. An aging workforce, a lack of skilled labor and an influx of inexperienced workers are contributing to an increase in costly accidents and injuries on construction sites. There is a significant skills gap, with 78% of companies struggling to find suitable employees, according to a survey conducted by the Associated General Contractors of America (AGC). Skilled labor shortages also led to job losses during the previous recession, and the trend of fewer millennials opting for manual labor is exacerbating the problem. The lack of industry expertise and mentors for the younger generation increases the risk of accidents and injuries, leading to a higher number of construction worker deaths each year.
Poor construction and construction defect claims
Long tail construction defect claims are increasing due to less experienced construction crews. Construction defects refer to any defect in the design, workmanship, or materials of a project, which results in property damage and human injury. Although general liability (CGL) insurance is intended to defend against these claims, court decisions in favor of plaintiffs can result in significant settlements. Contracts often shift more and more liability to contractors, making it a challenge to manage injured workers on construction sites as the Workers’ Compensation Act’s exclusive remedy clause is weakened.
Manage projects larger than capabilities
The growing demand for construction projects has led general contractors and subcontractors to take on more or larger projects than they can actually handle. Over-extension not only poses serious safety risks, but also increases the likelihood of errors and accidents on construction sites. As billion-dollar projects become more common in the industry, contractors can go beyond their areas of expertise to keep up with the market. Unrealistic expansion is the number one reason contractors fail, according to Surety Information Online, with performance issues a close second. Insurers in the construction industry are concerned about the strain caused by the huge volume of work, especially with large-scale projects.
Risk of fire in the works
Fires are common in construction sites, especially in wood-frame constructions. Materials such as wood, solvents, gasoline and packaging materials present on site can easily catch fire, leading to costly losses if hot work activities are not managed properly or site safety is lax. Renovation works in older buildings with continuous studs from the basement to the roof increase the risk of fire. A single spark from equipment such as polishers, welders or temporary lighting can have devastating consequences.
Protection against theft, vandalism and damage
Unattended construction sites also face various hazards, including leaking or frozen pipes, hot work, theft and vandalism. A well-protected and well-lit construction site is less likely to be vandalized, but not all locations can maintain strong protection during peak hours, leaving some projects vulnerable to destruction and vandalism. Leaky pipes can cause significant water damage, while construction theft causes losses estimated at $1 billion annually. Contractors can mitigate these risks by keeping detailed records of supplies, they say construction equipment when not in use, and register it with your insurer.
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