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Construction Risk

11 Critical Risks Facing the Construction Industry

Workers and employers in the construction industry continue to face numerous emerging risks and challenges.
By: | May 8, 2018 • 6 min read

From slips and falls and weather-related business interruption to fires and stolen equipment, construction sites will face innumerable risks every day. As a complex sector for insurance professionals to insure, the industry will need to prepare for these growing and emerging risks.

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Added to that, construction is booming in the U.S., leaving it vulnerable to even more dangers.

Builder’s risk insurance is designed to protect the structure or building, employees on site and the raw materials being used. But builder’s risk doesn’t cover for faulty workmanship or poor materials. Exclusive remedy in workers’ compensation is being challenged daily, as well, and is a pain point for contractors across the country and particularly in New York, where the Scaffold Law has opened the door to hundreds of thousands spent on litigation. On top of that, increased frequency and severity of natural disasters has delayed sites from completing projects on time, hurting productivity and increasing the need for business interruption coverage.

Construction risk managers and contractors need to be on the top of their game. Know the risks involved; learn how to prevent them from happening. Whether its residential or commercial, a project needs a keen eye from start to finish.

1) Shifting Workforce

The skilled labor shortage, an aging workforce and an influx of inexperienced workers is driving up costly accidents and injuries on construction sites.

The Associated General Contractors of America (AGC) wanted to put a number to the talent gap, conducting a survey that questioned contractors about their current workforce. AGC found that 78 percent of firms are having trouble finding qualified workers.

Labor-shortage pain hit home when long-term workers were laid off during the U.S.’s economic downturn a few years back. More than two million jobs were lost. Add to that an aging population — baby boomers are continuing to retire at rapid pace — and few millennials entering into this manual labor career.

It’s a recipe for disaster.

Around 21 percent of construction industry employees are age 55 and older, while just 9 percent are 24 or younger. This leads to a heightened risk of injury or illness due to less experience in the field and few mentors to help the younger generation learn best practices. Construction holds the lead in all industries with the total number of worker deaths each year.

Not to mention, as more women enter into construction, the industry has yet to embrace safe equipment for them.

2) Construction Defect

With a less-experienced workforce, long-tail construction defect claims are on the rise.

Construction defects refer specifically to any defect in the design, workmanship or in the materials used on a project. (Think of the Leaning Tower of Pisa, sinking into the earth because its builders didn’t check the surrounding soil conditions.)

Construction defect claims arise from mishaps of all sizes and types of projects. The payout can be steep if a court rules in favor of the plaintiff.

These defects are resulting in failures to buildings or structures and leading to property damage and human injury. Construction defect claims arise from mishaps of all sizes and types of projects. And while commercial general liability (CGL) insurance is designed to protect construction companies from such claims, the payout can be steep if a court rules in favor of the plaintiff.

There are also exclusions to CGL that will leave a construction firm vulnerable if a construction defect claim arises. These exclusions include pollution, electronic data and war, to name a few.

3) Contractual Risk

Owners continue to shift more liability to contractors via contract language. This is especially tricky when it comes to workers injured on a construction site.

Contracts are used to bend the exclusive remedy provision of the Workers’ Compensation Act. This provision provides workers with compensation in the event of injury or illness while protecting employers from being sued for liability by workers injured on the job. Workers’ compensation acts as the sole remedy to address workplace injury.

Mark A. Lies, labor attorney, Seyfarth Shaw LLP

Sometimes the wording in a contract drawn up between a subcontractor and a general contractor may state that the subcontractor waives its right to the exclusive remedy protections of the Workers’ Compensation Act. This could then expose the subcontractor to a personal injury claim by its own employee, explained Mark A. Lies, labor attorney, Seyfarth Shaw LLP.

In many of these cases, the subcontractor does not realize they waived their exclusive remedy protection until an employee injury occurs. When this happens, the third party is protected by workers’ compensation if a worker is injured, but the contractor is left vulnerable to personal injury liability suits.

“We see potential waivers all the time,” added Lies.

4) Overextension

Increasing demand may drive general contractors and subcontractors to take on larger or more projects than they have the capacity to handle. This not only acts as a huge safety risk, but overextension can also exacerbate defects and site accidents.

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Building is booming in the U.S.; billion-dollar projects are no longer “abnormal” in construction anymore. And with contractors working to keep their firm ahead of the competition, it’s no wonder they’re taking on too big of projects with little bandwidth or resources to complete all of them. In fact, many overextend and take on projects outside their scope of practice.

When looking at the top five reasons why contractors fail, unrealistic growth — which includes overextension and taking on too much work — ranked as number one with 37 percent.

When looking at the top five reasons why contractors fail, unrealistic growth — which includes overextension and taking on too much work — ranked as number one with 37 percent, according to Surety Information Online. Performance issues, which includes inexperience with new scopes or types of work, came in at a close second with 36 percent.

Beyond construction, underwriters for the construction industry are feeling the pinch as more construction sites aim to take on bigger and broader jobs. The sheer volume of the work is a concern for underwriters, particularly projects costing billions of dollars.

5) Fire

Poorly managed hot work activities or shortfalls in site security, especially in wood-framed construction, can result in costly losses.

A construction site fire isn’t that uncommon. A single spark from a sander, welder, a cigarette, electrical wire, temporary lighting and the like will easily set wood, solvents, packaging or gasoline — all found on construction sites — up in flames.

Fire risk in renovation construction is especially high, because older homes and buildings contain studs that start in the basement and run up to the top of the house. If a fire were to start, the very core holding the building up could send a flame throughout the entire structure.

Munich Re released a fire loss prevention guide specifically for construction sites. It noted fire needs three things to become self-sustaining: heat, combustible material and oxygen.

Construction sites will have all three at any given moment throughout the building process because of the very nature of its work. Ensure the heat, material and oxygen are not combined in an uncontrolled manner. Training is key.

6) Site Protection

Unattended jobsites can result in unknown damage from leaking or frozen pipes, smoldering hot work, and theft/vandalism of equipment and materials.

A well-lit, fenced in construction site is less likely to be vandalized than one with nothing guarding it. Unfortunately, not all sites will have extensive security during its off hours, and unattended projects are vulnerable to damage and vandalism.

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One pipe with a small crack can leak more than 250 gallons of water per day, destroying walls, floors and tools if they are in the line of fire. Draining the pipes or keeping a site warm are two methods to protect pipes from leaking, freezing or bursting and save thousands on replacement and repair.

In addition, the price of stolen materials can add up. Losses in construction theft estimate $1 billion annually. A construction site will face the indirect costs of increased insurance premiums, rental costs to replace stolen equipment and machinery, and lost productivity while waiting to replace inventory.

There are some ways to protect against unwanted vandals, which can prevent loss on construction sites. Contractors should keep detailed records of all materials, secure equipment in safe places when not in use and register the construction site’s heavy equipment with their insurer.

Additional Risks

7) Natural Disasters

8) Financing Big Projects

9) Regulatory Change

10) New Technologies

11) Missed Deadlines

For your own chance to rank the top growing risks in construction, visit Risk & Insurance®’s Construction Risk List, where you can decide which risks are most pressing. You can then submit your answers and see what other risk professionals had to say about the top construction risks. &

Autumn Heisler is digital producer and staff writer at Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

The risk manager for Boyd Gaming Corp. says curiosity keeps him engaged, and continual education will be the key to managing emerging risks.
By: | May 1, 2018 • 4 min read

R&I: What was your first job?

I was trained as an accountant, worked in public accounting and became a CPA. Being comfortable with numbers is helpful in my current role, and obviously, the language of business is financial statements, so it helps.

R&I: How did you come to work in risk management?

Working in finance in the corporate environment included the review of budgets and the analysis of business expenses. I quickly found the area of benefits and insurance — and how “accepting risk” impacted those expenses — to be fascinating. I asked a lot of questions. Be careful what you ask for — I soon found myself responsible for those insurance areas and haven’t looked back!

R&I: What is the risk management community doing right?

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I have found the risk management community to be a close-knit group, whether that’s industry professionals, risk managers with other companies or support organizations like RIMS and other regional groups. The expertise of the carriers and specialty vendors to develop new products and programs, along with the appropriate education, will continue to be of key importance to companies going forward.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

As I’m sure many in the insurance field would agree, Hurricanes Katrina and Rita in 2005 changed our world and our industry. It was a particularly intense time and certainly a baptism by fire for people like me who were relatively new to the industry. This event clearly accelerated the switch to the acceptance of more risk, which impacted mitigation strategies and programs.

Bob Berglund, vice president, benefits and insurance, Boyd Gaming Corp.

R&I: What emerging commercial risk most concerns you?

The fast-paced threat that cyber security represents today. Our company, like so many companies, is reliant upon computers, software and IT expertise in our everyday existence. This new risk has forged an even stronger relationship between risk management and our IT department as we work together to address this growing threat.

Additionally, the shooting event in Las Vegas in 2017 will have an enduring impact on firms that host large gatherings and arena-style events all over the world, and our company is no exception.

R&I: What insurance carrier do you have the highest opinion of?

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With the various types of insurance programs we employ, I have been fortunate to work with most of the large national and international carriers — all of whom employ talented people with a vast array of resources.

R&I:  How much business do you do direct versus going through a broker?

We use brokers for many of our professional coverages, such as property, casualty, D&O and cyber. We are self-insured under our health plans, with close to 25,000 members. We tend to manage those programs internally and utilize direct relationships with carriers and specialty vendors to tailor a plan that works best for team members.

R&I: Who is your mentor and why?

I have been fortunate to have worked alongside some smart and insightful people during my career. A key piece of advice, said in many different ways, has served me well. Simply stated: “Seek to understand before being understood.”

What this has meant to me is try everything you can to learn about something, new or old. After you have gained this knowledge, you can begin to access and maybe suggest changes or adjustments. Being curious has always been a personal enjoyment for me in business, and I have found people are more than willing to lend a hand, offer information and advice — you just need to ask. Building those alliances and foundations of knowledge on a subject matter makes tackling the future more exciting and fruitful.

R&I: What have you accomplished that you are proudest of?

Our benefit health plan is much more than handing out an insurance card at the beginning of the year. We encourage our team members and their families to learn about their personal health, get engaged in a variety of health and wellness programs and try to live life in the healthiest possible way. The result of that is literally hundreds of testimonials from our members every year on how they have lost weight, changed their lifestyle and gotten off medications. It is extremely rewarding and is a testament to [our] close-knit corporate culture.

R&I: What’s the best restaurant you’ve ever eaten at?

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Some will remember the volcano eruption in Iceland in spring of 2010. I was just finishing a week of meetings in London with Lloyd’s syndicates related to our property insurance placement when the airspace in England and most of northern Europe was shut down — no airplanes in or out! Flights were ultimately canceled for the following five days. Therefore, with a few other stranded visitors like myself, we experimented and tried out new restaurants every day until we could leave. It was a very interesting time!

R&I: What is the riskiest activity you ever engaged in?

I am originally from Canada, and I played ice hockey from the time I was four years old up until quite recently. Too many surgeries sadly forced my recent retirement.

R&I: What do your friends and family think you do?

That’s a funny one … I am a CPA working in the casino industry, doing insurance and risk management, so neighbors and acquaintances think I either do tax returns or they think I’m a blackjack dealer at the casino!




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]