This post is part of a series sponsored by IAT Insurance Group.
The construction industry faces new challenges every year, and 2024 is no exception. Although there was an increase of 19.7% in 2023[1] When it comes to spending on non-residential buildings, many experts expect construction investment to slow in 2024.[2] This is mainly due to fewer loans for new construction projects due to skyrocketing interest rates.
This could impact how many people in the construction industry protect their assets. Fortunately, there are ways to address the potential challenges of the coming year. Here are three trends and best practices that can help you and your business move into 2024 with confidence.
1. Contractually Required Purchasing Limits
Many smaller construction companies are currently taking out the legally required minimum insurance amount in order to maintain operations and thus protect their liquidity.
Subcontractors to larger general contractors will attempt to purchase lower coverage amounts when possible, but most contracts with developers require coverage amounts between $1 million and $2 million. Uninsured subcontractors who specialize in a particular area typically only receive the minimum insurance required by their contracts.
Cost increases in insurance coverage, labor and materials are a key driver of these changes. A shortage of skilled workers is also making it harder for smaller companies to compete with larger companies for jobs, and the projected slowdown in new construction could exacerbate this trend.
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Less insurance coverage can mean higher liability potential for construction companies. The best way to approach this trend is Enforcing measures that ultimately reduce potential risks.
Implement safety plans Reduce liability risks. If you have a risk manager, engage them for this goal. If not, a more accessible way to manage potential risks is to do so Usage guarantees, which guarantee your work or promise to resolve customer complaints if they arise within the warranty period. This can help manage risk and costs and reduce the likelihood of claims.
2. Repurposing of larger construction projects
In 2024, there will likely be reused projects in the construction industry.
With hybrid and remote work now the norm for about 41% of full-time employees,[3] There is less need for formal office space and greater need for residential space. This demand is driven primarily by population changes, which are less susceptible to large, sudden changes, while demand for office buildings is subject to inevitable technology-driven innovations in the way people work.
For this reason, empty condominiums or apartment buildings are a rarity, but in many cities there are vacancies in office buildings. More developers are capitalizing on this shift by converting old office buildings into residential spaces to meet housing needs, a trend that is expected to increase in the coming year.
As costs and competition for funding have increased and the way we work and live have changed in recent years, increasing demand for repurposed projects could replace some of the current new build market.
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Much of the risk in this trend lies in whether a converted home has one or more owners. For example, a rental apartment complex usually has a single owner for the entire building, which can minimize the risk of construction defects. When each unit has an individual owner, such as in condos or co-ops, builders are at greater risk of construction defect claims. This is particularly likely if there is major damage, for example due to leaky windows or a leaky roof.
Insurers are aware of this increased risk, so insuring a building being converted into condominiums typically costs more than insuring the construction of a rental home. However, when setting premiums, insurers also consider the builder’s reputation and track record – the skills developed in different types of buildings.
If your company plans to switch to building or renovating a specific type of building, Take some time to understand your risk. Due to the inexperience in this type of construction, it can be more expensive to obtain insurance for new ventures, resulting in a higher risk for insurers. Insurers who do not have a claims history or good quality claim to guide their decision-making will default to offering more expensive coverage to offset the risk associated with insuring your business.
3. Rising costs
From materials to labor to insurance premiums, the cost of just about everything has risen in recent years. The rise in inflation has driven up the cost of liability insurance. The cost of medical treatment and attorney fees have increased the overall cost of claims. Another reason for rising liability insurance costs is social inflation caused by changes in popular sentiment regarding settlements and verdicts.
Labor issues may also contribute to rising costs in 2024. The lack of skilled workers with job-specific experience can lead to more injuries on construction sites. This increases the volume of a company’s workers’ compensation claims, which drives up insurance costs. This also results in longer project completion times and could result in an inferior product. Companies that manage to find skilled workers will face higher costs due to greater demand.
Rising interest rates can have an additional impact on costs. The cost of borrowing money is higher than it has been in many years.[4] This makes it increasingly difficult for construction projects to obtain the necessary funding to move forward. Many construction projects are likely to experience delays if interest rates remain high through 2024.
Added to this are the material costs. Supply chain issues caused by the COVID-19 pandemic have significantly increased material costs and have yet to stabilize.
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While the rising cost of goods and services is largely unavoidable, there are some insurance-related strategies that can help protect your construction company’s bottom line in 2024.
If you run a larger construction company, A loss-sensitive program can be the key to reducing costs. This is a type of self-insurance that allows your business to pay a lower premium and cover its losses up to the deductible. This strategy allows you to benefit from reduced insurance premiums as your business’s losses improve over time, which can help you get insurance costs under control.
For small businesses, Exposure management is critical. You will want that too Evaluate the potential impact of your coverage costs. Many smaller construction companies only buy what the government charges to complete a job in order to keep costs down. However, this can backfire if a costly claim arises.
Smaller construction companies can Consider self-insurance or go “at nothing” with coverage – before you do this, take some time to understand the risks. For example, if you settled a $3 million claim and only purchased $1 million in coverage, your company would be responsible for the remaining $2 million.
Managing the effects of construction insurance competition
The construction insurance market is increasingly competitive – and is expected to continue to be so through 2024 – due in part to the influx of new entrants into the construction insurance space. At the same time, nuclear verdicts and social inflation are increasing and the costs of compensation claims are rising accordingly. Many carriers have also reported an increase in property and CAT-related claims, so there is appeal in the longer-term nature of construction claims.
What can you do?
Keep an eye on continuity of coverage while navigating this landscape. After you have worked with an insurance carrier for a while, you will learn about their terms and conditions, exclusions, employees and claims processing practices. Continuous coverage also ensures that the carrier understands the industry and your company’s unique needs, which can be extremely beneficial in settling claims in a timely manner. Additionally, if you have a good claims history with the same carrier, you may have the opportunity to get lower insurance costs. Continuing coverage from your wireless provider also helps ensure there are no gaps in coverage.
Furthermore, it is advisable implement a risk management and security program. A full-time security/risk manager can help your company develop a formalized and actionable security and risk program. A successful risk management program can include measures such as maintaining assets or equipment, verifying certificates of insurance (COIs) from subcontractors, and deploying security teams to help your company reduce its risk.
Above all, make sure you do it Look beyond the price and look at the coverage if you are thinking about changing your insurance carrier. Comparing coverage requires a comprehensive assessment of the offer; It is not simply a price-to-price comparison.
For guidance on managing risk for your construction projects and portfolio in 2024, contact IAT Insurance.
[1] Building Design + Construction “Leading economists call for a 2% increase in construction spending in 2024,” July 2023.
[2] American Institute of Architects: “Nonresidential construction spending is expected to decline through 2024,” January 2023.
[3] Forbes Advisor “Remote Work Statistics and Trends in 2023,” June 2023.
[4] Investopedia “Federal Reserve keeps interest rates at 22-year high,” November 2023.
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Trends Contractor Construction
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2024-03-07 05:58:06
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