When discussing trends in the Constructioninsurance
marketplace, experts agree: The greatest concern is a shortage in skilled labor
to meet the growing demand in projects.
“This is probably the single largest issue in the
construction industry—the lack of qualified and experienced talent, at all
levels: not just field labor, but project engineering, project management,
leadership, etc.” says Brian Cooper, managing director of Arthur J. Gallagher's
National Construction Practice. “There's just a dearth of experienced and
talented people.”
Like many lingering issues in sectors all across the U.S.
economy, the deep recession that began in December 2007 is largely to blame for
the talent shortage. Gary Kaplan, president, North America Construction at XL
Catlin, says unemployment in the construction sector climbed to more than 20%
during the downturn. Years went by during the slow recovery, and now, as
construction picks up, the remaining workforce is older and nearing
retirement—“and they haven't done a good job of training the next generation,”
he adds.
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Kaplan has concerns over energy projects along the Gulf
Coast, where a lot of multibillion-dollar contracts are being awarded for
specialized construction work, “and I don't know where they’re going to get all
the people for [that work].” As new workers are used on projects and even as
experienced workers return or move to different companies, risks increase. Rick
Keegan, president of Travelers Construction, says about 50% of all construction
worksite injuries occur during the first year of employment. That statistic
holds true, he says, regardless of a worker's age or level of experience: “Even
skilled workers are susceptible to this as they transition to new companies and
projects.”
Good contractors, says Kaplan, know their capabilities
before they bid on projects. Less-sophisticated contractors may not assess
their capabilities as well, “and those are the ones that would scare me the
most as not having the right kinds of people to do the work, once they win the
bid.”
Jack Probolus, manager, construction wraps, commercial
insurance for Liberty Mutual, says contractors are also reaching out to trade
schools to attract talent—with a particular focus on welders, given the
increase in pipeline work. “There's an awareness of the [talent] problem,” he
says, “and there are a lot of outreach programs across the country to engage
younger people to show them [construction is] a viable opportunity for a
career.”
Keegan says contractors also are implementing
assimilation programs and onsite mentoring and coaching to mitigate risks from
new employees, and Cooper adds that contractors are paying more attention to
employee benefits and long-term compensation programs to lure and retain
skilled workers.
Construction strategies are also evolving. Kaplan and Cooper
both point out the increase in offsite modular construction, where a lot of the
work is done in a closed, controlled environment and then moved to the
worksite. Kaplan says this has allowed contractors to retain older skilled
workers, because they are no longer working outside in the elements as often.
Pricing and Capacity
Despite the challenges—and experts are quick to point out
that there are always challenges when writing Construction coverages—new
capital is entering the Construction market and pricing continues to be
competitive.
Kaplan says pricing overall is flat to slightly
positive—to cover claims inflation—compared to a year ago, but some lines, such
as Builders’ Risk on the property side, are more competitive. “There seems to
be way too much capacity” in Excess Liability from both primary carriers and
surplus-lines insurers that are not typically in the Construction marketplace,
he adds.
Although there is no shortage of capacity or competition,
Cooper says underwriters are beginning to get more selective on the accounts
they write, even if those accounts do receive lower rates. Anemic investment
returns due to low interest rates have led to pressure on underwriting to make
a profit on long-tail lines like Liability, he explains.
This extends to broker selection as well, Cooper adds,
noting that carriers are becoming more particular when choosing distribution
partners. Likewise, brokers and risk-aware buyers are sharpening their focus on
carriers, choosing ones that provide services beyond collecting premiums and
paying claims.
With all of the coverages involved in Construction,
Cooper and Keegan say Auto Liability has actually been a significant driver of
exposure and severity. Keegan cites basic driver distraction, pedestrian
distraction and an increased number of miles driven as reasons.
“It's a dramatic increase in large claims,” says Cooper,
noting that he's seen a significant increase in combined ratios just over the
last five years. He adds that claims are blowing past the first million in Auto
Liability coverage and hitting excess layers as well: “It's a big area of
concern for the industry, and results have moved there more than [in] any other
line.”
The growing role for producers
If Construction is a challenging market for insurers, it
is just as, if not more, challenging today for agents and brokers. “We’re being
asked, and really are required, to do a lot more from the service standpoint,”
says Cooper. “We’re not attorneys, but we review contracts all day long.”
Producers must gain knowledge and expertise on
specialized, changing and increasingly complex insurance products, and must
exercise quality control for clients. When a policy comes in for an insured,
Cooper notes, brokers must have a “detailed process of reviewing it against
what was promised and looking at what the exposures are to make sure it all
matches up.”
The interest in wrap-ups and the changes in that area
over the last 15 years are examples of how construction coverages can quickly
evolve. Cooper says anti-indemnity statutes in some states preventing general
contractors from passing along exposures to subcontractors led to general
contractors implementing more rolling CCIPs (Contractor Controlled Insurance
Programs) to manage risks.
Brian Billhartz, senior vice president of Wrap Up
Insurance Solutions, which provides agents and brokers with expertise on
wrap-up coverages, notes that traditional wrap-ups go back at least 40 or 50
years, but the last decade has seen not only the emergence of CCIPS, but
GL-only wraps that have attracted surplus-lines carriers not traditionally
involved in construction.
Billhartz says agents looking for carriers to partner
with must keep in mind that “this is a long-term deal. This isn't like your
typical renewal where you do it for one year. When you buy a wrap-up, you’re
buying it for seven, eight, nine, 10 years, and who do you want to be with you,
if something were to happen?”
With the increasing services and expertise agents and
brokers must provide across the construction marketplace, Cooper says exposure
has increased for them as well. “Mistakes are much more costly now than they
have been in the past,” he says.
Keegan adds that agents can help themselves by
understanding contractors’ goals and objectives. If agents can get a handle on
a client's risk management, safety philosophy and tolerance for risk, then they
can better select a carrier that's an ideal fit.
Source: Property
Casualty 360
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