Risk Report: Construction

Boom Risk and Opportunity

An ongoing shortage of experienced labor threatens the construction industry on multiple fronts.
By: | November 1, 2017 • 6 min read

September, the City Council of New York voted unanimously to approve a bill requiring workers on most construction projects to participate in at least 40 hours of safety training.


A building boom in the nation’s largest city was accompanied by a rise in the number of fatalities: eight so far this year; 12 in each of the two previous years, but only eight total in 2014.

Across the country there are calls for large infrastructure projects. But builders, along with their brokers and underwriters, are worried about several troubling trends. Fewer young people are entering the building trades as the industry grays. Diversity also is a stubborn challenge.

The new law in New York is one large step — among many efforts across the country — to address the issues.

“We are glad these questions are being asked,” said Gary S. Kaplan, president of North America Construction at XL Catlin. “We have been asking these questions or years, and I am just starting to feel a little better about the answers, at least what we hear from the larger contractors. We are seeing fewer claims that are related to traditional safety issues.

“Kaplan has written extensively on demographics, recruiting, safety and training, including an essay on his firm’s website. Older workers, despite their expertise and safety training, face an increased likelihood of injury, he said.

“Ask any actuary,” Kaplan wrote. “Older workers are more prone to injury than younger ones. It’s just a biological fact. They’re especially susceptible to soft-tissue injury. Worse, the older the worker, the longer soft-tissue injuries can take to heal.”

The other risk is less obvious, but it’s every bit as debilitating for the industry, said Kaplan. It’s part of a massive shift in the demographics of the construction industry and the U.S. economy: retirement.

“While an injury might never happen — retirement will.”

According to the Social Security Administration and Pew Research, Baby Boomers are reaching retirement age at the rate of nearly 10,000 per day.

Construction occupations make up roughly 10 percent of the total labor force in the U.S. If representation is proportional, that means about 1,000 construction workers reach retirement age every day.

Benefits of Diversity

Diversity is part of the answer, said William B. Noonan, executive vice president and industry leader for North American construction at brokerage Willis Towers Watson.

“Diversity is tied to the talent shortage. The more diverse your recruiting, the better you are able to recruit from across the whole talent pool,” said Noonan.

Workforce management and talent optimization was one of the megatrend challenges identified in the white paper “Deconstructing Risk,” the Willis Towers Watson 2017 Construction Risk Index.


It also matters in winning contracts. “Before you can put people to work, you have to win work,” Noonan added.

“Proposals will only get you an interview with an owner to present your ideas and answer questions. You have to show up for those looking as diverse as the clients you hope to work for.”

The same is true in insurance. “For most lines of coverage, underwriters are going to be looking at your past performance,” said Noonan.

“They are going to look at your loss metrics, but you are going to have to tell your story in person. I was previously a chief risk officer and we would always look at our own losses, our own story, before going to the underwriters.”

“Diversity is tied to the talent shortage. The more diverse your recruiting, the better you are able to recruit from across the whole talent pool,” — William B. Noonan, EVP and industry leader for North American construction, Willis Towers Watson

Internally and externally it all comes down to how a company presents and represents itself. Better selected, more diversified workers are also easier to train, especially for highly skilled trades.

“One thing that worries me is that first-line supervisors are having to spend more time training than on supervising work,” Noonan lamented. “That directly affects construction defect claims. You can trace supervision to quality assurance and quality control.”

He also is concerned that the recent string of natural disasters, from earthquakes across Mexico to hurricanes along the U.S. Gulf Coast and in the Caribbean are “putting a very big strain on an already thin pool of construction workers.

“Where people go will be about who offers the best pay and conditions, and which workers are willing to travel.”

Much rebuilding to be done in many places at the same time will draw new workers, but that goes directly back to the challenges in training and supervision. “The more front-line supervisors are diverted from their primary purpose, the more QA/AC, project completion times and budgets are directly affected. It goes hand in hand,” said Noonan.

Stephen Buonpane, senior vice president of construction at Chubb, concurred.

Gary S. Kaplan, president, North America Construction, XL Catlin

“Construction companies facing a shortage of skilled labor need to know that a lack of proper training and experience could lead to an increased likelihood of worker injuries, resulting in higher workers’ compensation and potentially general liability losses,” said Buonpane.

Any increase in workers’ comp claims not only increases costs associated with the project but could also lead to reputational concerns and project delays, Buonpane added.

“However, increased workers’ comp claims are not the only liability associated with construction sites.

“For instance, if construction sites aren’t properly maintained and controlled — especially in densely-populated areas such as New York City where there has been a boom of construction activity over the past four years — construction companies are exposed to third-party liability if their [work] injures a person or property outside the construction area.”

Further, the shortage of skilled labor also can affect the quality of construction and increase the loss exposure on the project post-construction.

“Construction companies need to be aware that if there are construction defects due to poor building quality, there could be liability losses down the road. And depending upon what has been built, those losses could be in the tens of millions of dollars,” Buonpane cautioned.


Kaplan at XL Catlin said he sees signs of improvement. “I was traveling recently and there was a construction project next to my hotel. I saw a guy flying a drone with a laser sensor. There was another driving an automatic compactor by a remote joystick controller. There also are 3D surveys and digital monitoring for level, heat and water.”

The key is engagement at all levels, Kaplan stressed.

“Construction companies are making more of a career path, from supporting shop classes in high school, to return-to-work paths as part of the worker’s comp process.

It’s important to grasp that an injury doesn’t necessarily mean having a worker totally sidelined. Studies have shown that injured workers are more likely to experience better health outcomes when a return-to-work plan is in place, said Kaplan.

“You have to be proactive to move the needle,” he said.

“On workers’ comp, you don’t want people to practice retirement. They might get good at it.”

Similarly on diversity, it takes active effort. “Equal opportunity is not sufficient. You have to push. It’s more than just wanting it. The better companies are stepping forward, but there is a long way to go.

“In gender, for example, of 10.3 million construction workers in the country about only 9 percent are female. I think that is the lowest of any major industry group.” &

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance


Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”


“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.


“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?


“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.