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Point/Counterpoint

Is Construction Too Risky?

Have the construction slowdown and other issues increased exposures?
By: | November 1, 2013 • 4 min read

Point: Industry is Well Positioned to Manage Growth Safely

The construction industry is finally getting back to work.

Thanks to the recovery of the housing market, overall construction spending increased 2.2 percent in the second quarter of 2013, compared to the previous quarter, according to Carter Machinery’s Quarterly Construction Report. Total private residential construction spending increased 3.3 percent.

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Anne Freedman, Senior Editor, Risk & Insurance®

The report noted the construction market is projected to grow 8 percent in 2014, due to “rapid” residential and nonresidential construction.

That’s good for the economy, the industry and the workers, but it also means risks will be increasing in this high-hazard field.

The industry is one of the most dangerous fields to work in, accounting for the highest number of fatal work injuries in any industry sector in 2012, according to the U.S. Bureau of Labor Statistics. Fatal injuries increased 5 percent, while the total hours worked in the industry increased 1 percent last year.

We know from the performance of one of our 2013 Teddy Award winners that builders are looking at their workers in a much more progressive way, going so far in some cases as to refer to them as “industrial athletes.”

And more good news: Fatal construction injuries have decreased nearly 40 percent since 2006, which indicates risk managers and owners are more sophisticated, and workers are being better trained.

The contraction in the industry has given the owners and project managers time to review and revisit some exposures. One recent innovation is design/build, which puts designers and builders together from the very beginning of a project so there is much better coordination.

In addition, owner controlled “wrap-up” insurance, with one carrier is in greater use now on larger projects. That provides much easier administration and gives the owner more risk management control over subcontractors.

We know that builders are looking at their workers in a much more progressive way, providing them with stretching regimens to reduce injury.

Project owners and contractors are also retaining more risk than in the past, so they are much more sensitive to the need for safety and quality.

Many in the industry are also beginning to understand the need for safety training to be done in both English and Spanish. That has seen some results. Fatal work injuries declined 5 percent for Hispanic and Latino workers in 2012. The natural process of contraction and rebalancing has resulted in an industry that is well positioned to manage the anticipated growth.

Counterpoint: Construction Risk is Getting Harder to Manage

A superficial reading of the finance pages shows a domestic construction industry that is making a tentative comeback. But underneath those hopeful reports lurks a darker truth, the industry is not in a good position to manage risk as business activity increases.

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Dan Reynolds, Editor-in-Chief, Risk & Insurance®

To gain perspective, understand that the industry saw tens of billions of dollars of opportunity evaporate during the downturn. One major carrier told us that contractors that once needed to bid eight to 10 jobs to land one are now bidding 30 to 40 to get work.

Price cutting is rampant and contractors are working on much thinner margins. That inevitably means safety corners are being cut.

In addition, the burgeoning urban lifestyle developments in sunbelt states are being built using wood framing rather than metal infrastructure. Why? Because from a labor and materials perspective, wood framing is cheaper to build with than metal. That’s a readily apparent indication of the way the industry is cutting costs. What worries us are the cost-cutting initiatives that are not as visible.

Another factor adding to risk exposures is the loss of experienced talent from the construction industry when the bottom fell out of it in 2008. That means companies that used to pay three people to manage safety are now paying one person — a less experienced person — to do the same work. And the workers themselves are less experienced and have less ingrained knowledge of safe behaviors.

Proof of this shortcoming is showing up in the data. An August report detailed that fatalities in the industry are ticking back up, to as many as 775 reported construction fatalities in 2012.

From a safety perspective, the U.S. Bureau of Labor Statistics ranks construction laborer as the 10th riskiest job in the country. The risk management ranks of the industry were decimated by the economic downturn. Couple that with the fact that it is using cheaper labor to perform the same risky tasks. That is not a good combination.

In some areas of the country, particularly New York, standard market carriers have pulled back from construction risks in droves due to liberal interpretations of labor laws that are allowing workers to sue employers outside of workers’ compensation’s exclusive remedy.

That’s another visible indication that construction risks are getting harder to manage.

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Editor’s note: The opinions stated in the Zurich Point of Action are provided for informational purposes only and are solely those of Zurich in North America.
The Zurich Point of Action opinions are not legal advice and Zurich assumes no liability concerning the information above. The Point and Counterpoint opinions are those of Risk & Insurance® and are completely independent of Zurich.

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]

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The R&I Editorial Team can be reached at [email protected]