Construction insurance premiums have surged in recent years due to larger project sizes and rising labor and material costs. The insurance industry is responding to fluctuations in construction expenses—including inflation, changes in building requirements and shortages of skilled labor—and contractors need to take proactive steps to manage these costs and focus on strategies that can reduce their insurance premiums.
Thankfully, real-world technology is delivering effective and demonstrated solutions for reducing risks in construction, particularly those associated with increasing water damage and exposure. Some of these emerging technologies are expected to help stabilize the market for insurance premiums and keep prices from continuing to escalate.
TECH TALK
For many in the construction industry, utilization of the latest and greatest tech has often flown under the radar, and the lack of understanding has meant the sector is historically slow to adopt new innovations. However, the tides are turning and the industry is seeing a push to embrace new technology such as wearables, data analytics, AI and robotics.
These advancements are helping contractors lower jobsite risk, leading to securing and maintaining lower premiums and reducing payouts for construction insurers. What’s more, making use of valuable data analytics and performance metrics enables contractors to establish a more favorable risk profile, ultimately influencing insurance premiums.
ROOT OF THE PROBLEM
Challenges such as understaffing, fire damage and water damage have all contributed to the rise in construction insurance premiums.
Construction is in the midst of a recruiting challenge, and the industry is said to need another 439,000 workers to keep up with demand. Add to that recent data from the Bureau of Labor Statistics and Associated Builders and Contractors that reveals nearly 25% of all construction workers are 55 or older and nearing retirement, and the problem is only going to intensify. Demand for qualified workers can outstrip supply, leading to higher wages, which in turn increase labor costs for construction projects. When there aren’t enough people on the crew, the likelihood of mistakes rises, raising alarm bells for insurance carriers.
Water damage also significantly contributes to rising construction insurance premiums due to high associated repair costs. Water damage can result from leaks, flooding or inadequate drainage—particularly as climate change amplifies extreme weather events—leading to costly payouts for insurers.
Then there are things that you don’t think about—like natural disasters or trade disputes, which can cause shortages and delays in materials availability. For instance, if a shipment of specialized steel beams from overseas is delayed due to congestion in a major port, it can hold up the entire process. These delays can result in additional labor costs, extended project timelines and contractual disputes, all which have an impact on insurance premiums.
WHAT TO DO
There are numerous strategies construction companies can employ to reduce insurance premiums. Many of the top insurance companies delivering construction premiums, such as AXA XL, HSB and Munich Re, recommend and even advocate for contractors to pay attention to new solutions and innovation.
For instance, new tech that provides contractors with state-of-the-art solutions for managing water across the entire lifecycle of a building is one important consideration. As an example, a platform that provides automated leak mitigation with real-time detection and automatic shut-off capabilities, advanced AI-driven anomaly detection, and analytics and comprehensive water-management solutions can work wonders.
To solve worker errors, contractors should be investing in education and training to ensure projects are completed defect-free and within timeframes, decreasing the likelihood of costly claims that impact insurance premiums. A well-trained team also contributes to overall project safety, further mitigating risks associated with construction.
Proactively addressing potential risks through comprehensive planning and execution can help lower exposure and claims, leading to more favorable insurance premiums over time. This includes using technology to forewarn of potential issues and implementing standardized processes for quality control.
So, as those in the construction industry consider solutions for stopping rising insurance premiums, it’s important to embrace the technological advancements to enhance workforce capabilities and mitigate costs. By doing so, contractors can avoid higher insurance premiums and make their projects stronger and safer.
SEE ALSO: NEW UNDERWRITING SECURITY REQUIREMENTS EVERY CONTRACTOR NEEDS TO KNOW
