Rapid-fire advancements in technology can leave many business sectors with whiplash trying to keep up.
The construction industry, however, has largely been immune to tech disruption. The means and methods of erecting a building, bridge or any other structure have more or less remained the same over the years.
But change is on the horizon.
New technology — like building information modeling (BIM), wearables, and automated machinery — is growing more prevalent on job sites.
These modern tools promise to boost efficiency, help address the skilled labor shortage and ultimately keep workers safer. Construction remains, after all, one of the riskiest industries from a safety standpoint.
But new technology also presents new risks if not thoughtfully implemented. Project owners, contractors and workers all must understand how a piece of technology works and how it benefits every stakeholder for it to be effective.
To harness the promise of construction technology while minimizing its downsides, contractors and their insurers should adopt a collaborative approach to understand how new tools fit into a project’s workflow, which encompasses everything from production processes and schedules to safety and risk management programs.
“Technology is changing the construction industry,” said Tom Boudreau, vice president of construction insurance for The Hartford. “Without strong collaboration and understanding of a common goal, safety and a good work product can’t be accomplished.”
Compared to traditional paper blueprints, BIM models provide a more detailed, interactive and 3D view of a project. Digitizing the plans has given way to more innovative building methods.
“With 3D BIM technology, we’re seeing much more off-site prefabrication being done in manufacturing warehouse environments,” said Dennis Gardner, risk engineering director, The Hartford. “This can reduce risk because much of the work is done at ground level, eliminating the need to put workers on ladders or in lifts.”
But getting pre-fabricated modules on-site creates unique challenges.
Pre-fabricated units that include interior designs should not be exposed to weather, which makes transporting, delivering and storing them risky. Collaboration is paramount to using these models effectively.
“In the past if your schedule was off by a day or two, there was typically a storage area for raw materials. But with a finished product that really should not be exposed to the elements, you have to be ready for when that unit arrives on site,” Boudreau said. “That requires a high level of coordination between the manufacturer and workers on site to keep schedules in sync.”
Wearables and GPS trackers similarly provide big safety benefits when workers and managers are on the same page.
A superintendent or foreman could, for example, apply geofencing to keep workers out of high hazard areas like elevated platforms if their work does not require them to be there. If a worker crosses the boundary, an alert may be sent directly to their wearable device, or to a safety manager on site. GPS tracking can also alert a manager to a worker’s location if they have fallen or otherwise injured themselves.
To some workers, though, wearing a tracking device can feel like Big Brother is watching, waiting to pin them for violating a safety protocol.
“Collaboration and communication is key to help contractors and laborers understand that the purpose of the technology is not to catch them doing something wrong, but to help them work safer and more efficiently,” Gardner said.
Automated and remote-controlled machinery can also improve safety by keeping workers away from high risk areas and activities.
“Semi-automated masonry machines can build a masonry wall semi-automatically with only minimal actual worker interface, reducing the risk of injury from material handling strains and injuries from falls,” Gardner said.
“Years ago if you were drilling in a quarry or on a construction project with a rock drill, the operator was standing right at the drill head operating the controls that applied the pressure, the rotational spin and the water control. Now that can be done remotely to eliminate the exposure to loud noise, the material handling of the heavy drill steel, and of course the exposure to silica.”
But any new machinery presents risks if handled improperly. The lack of labor skilled in operating new, high tech equipment — combined with inadequate training — exacerbate these risks.
“The economic downturn really diminished the training resources offered by vocational schools and unions, which leads to less trained folks coming onto a job site. That’s a dangerous situation from a safety perspective and also from a product perspective,” Boudreau said.
Younger workers also tend to learn differently, utilizing technology where their veteran counterparts relied more on gaining hands-on experience in the field. Older workers, perhaps feeling threatened by the new technology or newer and younger workers coming onto the scene, are at times resistant to help train them.
“We have been disappointed, in some cases, with the lack of willingness of some of the older generation to teach the new generation necessary skills,” Boudreau said. But where technology widens the divide between the young and the experienced, it can also provide a new training avenue.
“Some of the wearables show some promise in that they can remotely connect a less experienced person in the field with a more seasoned worker, who can help to troubleshoot whatever issue the trainee is encountering.” Gardner said. “In some cases, the wearable device can provide a live view of the situation at hand.”
GPS units, BIM models, and digitally automated equipment may also provide data on workflow processes and safety vulnerabilities. Gaining additional insight into these areas will likely prove critical as construction timetables further compress and the labor shortage persists.
“We have to shift to a proactive safety approach. We have to think about what risks we’ll face weeks or months ahead in the schedule.” — Dennis Gardner, risk engineering director, The Hartford
Leveraging what technology has to offer — from safer work sites to better data and increased efficiency —calls for collaboration on the job site.
This is where The Hartford’s dedicated construction risk engineering consultants take a leading role.
“We have to move from a traditional inspector role into more of a consultative role,” Gardner said. “We want to understand the dynamics of a company, their safety programs, and how they’re using automated tools or connected technology.”
Inspectors typically only spot point-in-time problems while they’re walking a job site. They don’t necessarily have insight into systemic issues that lead to safety shortfalls, or hazards the company may face in future phases of construction.
“Traditional inspection approaches are reactive and punitive. We have to shift to a proactive safety approach. We have to think about what risks we’ll face weeks or months ahead in the schedule,” Gardner said.
To help accomplish this proactive approach, The Hartford’s risk engineering consultants meet with contractors before a project even begins to identify phases of construction or periods in the schedule where risk may be highest. They discuss ahead of time what will be done to mitigate the risk, including evaluating the safety program. They can help project managers implement things like wearables if there is a desire to use them.
“The use of technology, especially the newer technology that’s been developed in the last decade, is eventually going to lead to much safer job sites,” Boudreau said. “But it all starts with a collaborative approach.”
For more on The Hartford’s construction offerings, visit https://www.thehartford.com/construction.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with The Hartford. The editorial staff of Risk & Insurance had no role in its preparation.
In the wake of a hurricane, earthquake, pandemic, terror attack, or any event that causes carnage on a grand scale, affected areas usually are subject to a large “protection gap” – the difference between insured loss and total economic loss. Depending on the type of damage, the gap can be enormous, leaving companies and communities scrambling to obtain the funds needed for a quick recovery.
RMS estimates that Hurricane Harvey’s rampage through Texas could cause as much as $90 billion in total economic damage. The modeling firm also stated that “[National Flood Insurance Program] penetration rates are as low as 20 percent in the Houston area, and thus most of the losses will be uninsured.”
In addition to uninsured losses from physical damage, many businesses in unaffected surrounding areas will suffer non-physical contingent business interruption losses. The hospitality industry is particularly susceptible to this exposure, and its losses often fall into the protection gap.
Natural catastrophes and other major events that compromise travelers’ safety have prolonged impacts on tourism and hospitality. Even if they suffer no physical damage, any hotel or resort will lose business as travelers avoid the area.
“The hospitality industry is reliant on people moving freely. If people don’t feel safe, they won’t travel. And that cuts off the lifeblood of the industry,” said Christian Ryan, U.S. Hospitality and Gaming Practice Leader, Marsh.
“People are going away from the devastation, not toward it,” said Evan Glassman, president and CEO, New Paradigm Underwriters.
Drops in revenue resulting from decreased occupancy and average daily room rate can sometimes be difficult to trace back to a major event when a hotel suffered no physical harm. Traditional business interruption policies require physical damage as a coverage condition. Even contingent business interruption coverages might only kick in if a hotel’s direct suppliers were taken offline by physical damage.
If everyone remains untouched and intact, though, it’s near impossible to demonstrate how much of a business downturn was caused by the hurricane three states away.
“Hospitality companies are concerned that their traditional insurance policies only cover business interruption resulting from physical damage,” said Bob Nusslein, head of Innovative Risk Solutions for the Americas, Swiss Re Corporate Solutions.
“These companies have large uninsured exposure from events which do not cause physical damage to their assets, yet result in reduced income.”
Parametric insurance is designed specifically to bridge the protection gap and address historically uninsured or underinsured risks.
Parametric coverage is defined and triggered by the characteristics of an event, rather than characteristics of the loss. Triggers are custom-built based on an insured’s unique location and exposures, as well as their budget and risk tolerance.
“Triggers typically include a combination of the occurrence of a given event and a reduction in occupancy rates or RevPar for the specific hotel assets,” Nusslein said. Though sometimes the parameters of an event — like measures of storm intensity — are enough to trigger a payout on their own.
For hurricane coverage, for example, one policy trigger might be the designation of a Category 3-5 storm within a 100-mile radius of the location. Another trigger might be a 20 percent drop in RevPAR, or revenue per available room. If both parameters are met, a pre-determined payout amount would be administered. No investigations or claims adjustment necessary.
The same type of coverage could apply in less severe situations where traditional insurance just doesn’t respond. Event or entertainment companies, for example, often operate at the whim of Mother Nature. While they may not be forced to cancel a production due to inclement weather, they will nevertheless take a hit to the bottom line if fewer patrons show up.
Christian Phillips, focus group leader for Beazley’s Weatherguard parametric products, said that as little as a quarter- to a half-inch of rain over a four- to five-hour period is enough to prevent people from coming to an event, or to leave early.
“That’s a persistent rainfall that will wear down people’s patience,” he said.
“A rule of thumb for parametric weather coverage, if you’re looking to protect loss of revenue when your event has not actually been cancelled, you will probably lose up to 20 to 30 percent of your revenue in bad weather. That depends on the client and the type of event, but that’s the standard we’ve realized from historical claims data.”
The industry is now drawing on data to establish these rules of thumb for more serious losses sustained by hospitality companies after major events.
“Until recently the insurance industry has not created products to address these non-physical damage business interruption exposures. The industry is now collaborating with big data companies to access data, which in turn, allows us to structure new products,” Nusslein said.
Insurers source data from weather organizations that track temperature, rainfall, wind speeds and snowfall, among other perils, by the hour and sometimes by the minute. Parametric triggers are determined based on historical storm data, which indicates how likely a given location is to be hit.
“We try to get a minimum of 30 years of hourly data for those perils for a given location,” Phillips said.
“Global weather is changing, though, so we focus particularly on the last five to 10 years. From that we can build a policy that fits the exposure that we see in the data, and we use the data to price it correctly.”
New Paradigm Underwriters collects their own wind speed data via a network of anemometers that stretch from Corpus Christi, Texas, all the way to Massachusetts, and works with modeling firms like RMS to gather additional underwriting information.
The hospitality industry is reliant on people moving freely. If people don’t feel safe, they won’t travel. And that cuts off the lifeblood of the industry.– Christian Ryan, U.S. Hospitality and Gaming Practice Leader, Marsh
While severe weather is the most common event of concern, parametric cover can also apply to terrorism and pandemic risks.
“We offer a terror attack quote on every one of our event policies because everyone asks for it,” said Beazley’s Phillips.
“We didn’t do it 10 years ago, but that’s the world we live in today.”
An attack could lead to civil unrest, fire or any number of things outside an insured’s control. It would likely disrupt travel over a wide geographic region.
“A terrorist event could cause wide area devastation and loss of attraction, which results in lost income for hospitality companies,” Nusslein said.
Disease outbreaks also dampen travel and tourism. Zika, which was most common in South America and the Caribbean, still prevented people from traveling to south Florida.
“Occupancy went down significantly in that region,” Marsh’s Ryan said.
“If there is a pandemic across the U.S., a parametric coverage would make sense. All travel within and inbound to the U.S. would go down, and parametric policies could protect hotel revenues in non-impacted areas. Official statements from the CDC such as evacuation orders or warnings could qualify as a trigger.”
Less data exists around terror attacks and pandemics than for weather, though hotels are taking steps to collect information around their exposure.
“It’s hard to quantify how an infectious disease outbreak will impact business, but we and clients are using big data to track travel patterns,” Ryan said.
Any data collected has to be verified, or “cleaned.”
“We only deal with entities that will clean the data so we know the historical data we’re getting is accurate,” Phillips said.
“There are mountains of data out there, but it’s unusable if it’s not clean.”
Parametric underwriters also tap into the insured’s historical data around occupancy and room rates to estimate the losses it may suffer from decreased revenue.
“The hospitality industry uses two key metrics to measure loss of business income. These include occupancy rate and revenue per available room, or RevPAR. These are the traditional measurements of business health,” Swiss Re’s Nusslein said. RevPAR is calculated by multiplying a hotel’s average daily room rate (ADR) by its occupancy rate.
“The hotel industry has been contributing its data on occupancy, RevPAR, room supply and demand, and historical data on geographical and seasonal trends to independent data aggregators for many years. It has done an exceptional job of aggregating business data to measure performance downturns from routine economic fluctuations and from major ‘Black Swan’ events, like the 9/11 terrorist attacks, the 2008 financial crisis or the 2009 SARS epidemic.”
Claims history can also provide an understanding of how much revenue a hotel or an event company has lost in the past due to any type of business interruption. Business performance metrics combined with claims data determine an appropriate payout amount.
Like coverage triggers, payouts from parametric policies are specifically defined and pre-determined based on data and statistical evidence.
This is the key benefit of parametric coverage: triggers are hit, payment is made. With minimal or no adjustment process, claims are paid quickly, enabling insureds to begin recovery immediately.
For hotels with no physical damage, but significant drops in occupancy and revenue, funds from a parametric policy can help bridge the income gap until business picks up again, covering expenses related to regular maintenance, utilities and marketing.
Because payment is not tied to a specific type or level of loss, it can be applied wherever insureds need it, so long as it doesn’t advance them to a better financial position than they enjoyed prior to the loss.
Parametric policies can be designed to fill in where an insured has not yet met their deductible on a separate traditional policy. Or it could function as excess coverage. Or it could cover exposures excluded by other policies, or for which there is no insurance option at all. Completely bespoke, parametric coverages are a function of each client’s individual exposures, risk tolerance and budget.
“Parametric insurance enables underwriting of risks that are outside tolerance levels from a traditional standpoint,” NPU’s Glassman said.
The non-physical business interruption risks faced by the hospitality industry match that description pretty closely.
“Hotels are a good fit for parametric insurance because they have a guaranteed loss from a business income standpoint when there is a major storm coming,” Glassman said.
While only a handful of carriers currently offer a form of parametric coverage, the abundance of available data and advancement in data collection and analytical tools will likely fuel its popularity.
Companies can maximize the benefits of parametric coverages by building them as supplements to traditional business interruption or event cancellation policies. Both New Paradigm Underwriters and Beazley either work with other property insurers or create hybrid products in-house to combine the best of both worlds and assemble a comprehensive risk transfer solution. &