Severe labor shortages, inflationary pressures and lingering supply-chain disruptions continue to complicate construction operations and increase project costs.
These factors may also increase the frequency and severity of claims, ultimately affecting the cost and availability of coverage.
At the same time, a surge in digital infrastructure, power generation and other large-scale industrial projects is fueling demand for construction insurance while introducing new and more complex risks.
Recognizing that risks throughout the construction value chain are becoming more interconnected, insurers may start digging deeper, including evaluating how projects are designed, built, supplied and operated.
The construction industry is wrestling with three main challenges:
- Labor shortages can delay projects,
- Supply-chain disruptions can force contractors to use unfamiliar materials or equipment, and
- Inflation can drive up replacement costs and claim values.
Finding qualified workers remains one of the industry’s biggest operational challenges. The Associated General Contractors of America reports most contractors are having difficulty filling open positions.
Many firms have had to postpone, reduce the scope of or cancel projects because they cannot adequately staff them.
The workforce shortage also has insurance implications. Less-experienced workers often require additional training and supervision which can affect project timelines.
Also, firms forced to hire and train new workers quickly may experience a temporary increase in workplace incidents as new hires gain experience with equipment, safety procedures and jobsite practices.
Softening rates
Fortunately, the insurance marketplace has become more competitive for well-managed construction firms.
After several years of rising premiums, many commercial insurance lines have begun to soften, particularly for contractors with strong safety records, effective risk management programs and favorable loss histories. Increased insurer competition is allowing many firms to negotiate broader coverage, improved policy terms and more favorable pricing.
That does not mean every contractor will see premium reductions.
Firms involved in heavy construction or habitational construction, those with large vehicle fleets and operations with poor claims histories may continue to face underwriting challenges. In those cases, insurers remain focused on policy terms, deductibles and coverage limitations even as overall market conditions improve.
The takeaway
The changing market provides construction firms with an opportunity to review their insurance programs rather than simply renew existing policies. As risks become more complex and interconnected, businesses should ensure their insurance programs reflect the realities of today’s operating environment.
Strong safety programs, workforce development, supply-chain planning and contractual risk transfer are becoming increasingly important factors in obtaining favorable insurance terms. It’s also important to work closely with us to ensure that all your risks are properly covered, especially if you are taking on new projects outside your typical scope of work.
Insurers increasingly evaluate entire project ecosystems instead of isolated exposures. Construction firms that understand and actively manage those evolving risks will be better positioned to protect their projects and bottom line.