A lack of labor in any industry has many implications, from decreases in productivity to increases in workers’ compensation claims. For the construction industry, a labor shortage can contribute to delays in project completion, issues with quality control, increased builder’s risk costs and more.

“Labor is a significant issue in today’s industry,” said David DeSilva, Head of Construction for The Hartford’s Middle & Large Commercial. “Skilled labor shortages hinder the ability of construction companies to uphold the timeliness or contractual requirements with the owner or higher-tiered contractors.”

An Associated Builders and Contractors analysis revealed the construction industry will need more than half a million workers above its current pace of hiring in order to meet demand. That would mean, the report estimated, an additional 650,000 workers.

“When you think about shortages and some of the issues they can cause, there are job delays, reengineering of construction sequences, a shift in the business model. They may be going from self-performed to more subcontracted work,” DeSilva said.

“As an example, if a trade doesn’t have enough workers and laborers to complete the job, they may subcontract part of that or all of that work out to someone else.” And even this practice has its own risk implications to contend with.

It’s no doubt, either, that the pandemic has increased the need for laborers. According to DeSilva, however, this was a growing concern pre-pandemic as well: “More workers were leaving the field than entering it, and firms were beginning to address the issues pre-pandemic.”

Now with the Great Resignation in the mix, an aging workforce and low interest from younger professionals, the construction industry needs to act in order to attract and retain skilled talent and mitigate against risk.

Here’s a deeper dive into what’s going on in construction, the insurance implications of a labor shortage and how construction professionals can start to course-correct and bring on the skilled talent they need to thrive.

Understanding Your Labor Shortage Exposures

David DeSilva, Head of Construction for The Hartford’s Middle & Large Commercial

As noted, a lack of labor can lead to several risk exposures. For the industry, specifically, there are a few key things that construction risk professionals should know in order to get a grip on mitigating risk.

A key component of construction is job bidding. Contractors meet with potential clients to give them a proposal for completing their project. Subcontractors use this bidding process to showcase their skills to the contractors to be considered for the job.

But with less labor, contractors aren’t able to take on as many jobs at the same time.

“You’re seeing firms be more selective in their bids and more selective in the work they’re taking on,” DeSilva noted. This means bidding has become more competitive in nature, thus driving up project costs for higher-tiered contractors or the owner, placing a strain financially on the project.

Less workers can also lead to workmanship issues.

“When you think about less experienced workers coming onto site and completing these jobs, there is a potential for downstream implications on the quality of work,” said DeSilva. Added to that, he said, newer workers could lead to timeliness issues as they take their time to become more familiar with the requirements of the job.

Also, less labor impacts timeliness in that contractors must adhere to safe shifts for workers, and fewer employees means less shifts, which could lead to longer project completion times. Some construction jobs last months — and even years — depending on the type of program and project it is.

Insurance Strains to Note

A skilled-labor shortage has the potential to impact all lines of insurance, no matter the size or scale of the project. DeSilva called attention to a handful that should be at the top of the consideration list for construction risk professionals to review.

Number one is workers’ compensation.

“It’s no secret that older workers take longer to recover from injury, which clearly impacts claim dollars and claim payouts,” he said. “Data has shown that less experienced workers, at the opposite end of the spectrum, tend to get injured more often, and with less workers in the field, there are higher demands on the workers that are left.”

It’s the perfect storm for potential mistakes or oversights, which can lead to more injuries.

It also has workmanship implications, as fewer workers under more pressure could possibly miss key performance and quality checks. That can lead to builder’s risk, yet another insurance line that feels the strain of the lack of labor in construction.

“Then there’s the overall economic inflation, driving loss dollars, medical costs, material costs, safety equipment — everything is increasing at record highs,” DeSilva added.

He said depending on the insurance program structure, these loss dollars could be directly paid by the contractor and indirectly through the insurer.

Safety as a Way to Bring in Skilled Labor

Safety and training have to be at the forefront of recruitment and retention of workers.

Not only will a strong safety training program bring down the number of injuries and help prevent risk, but it will also create a culture of safety among laborers. That in turn shows these workers their employer cares about their wellbeing and gives them a sense of security in their job.

“Risk managers and safety directors are really beefing up their training and safety programs in an effort to mitigate loss and retain the talent that they already have,” said DeSilva. A key way they’re doing this is by looking to technology for safety solutions.

“When you think about the implementation of onsite imagery, or water sensors, wearables on workers, or telematics in vehicles,” said DeSilva, “these technological devices are going to help drive down loss costs and ultimately benefit both the firms and the workers.”

Partnering with a Team Skilled in Construction’s Demands

Once construction firms understand the labor shortage and its impacts, it can be hard to determine what to do next. Implementing a quality safety program is a good start, but knowing exactly what that entails will require an insurance partner that can guide contractors and construction risk professionals towards the best solutions for them.

At The Hartford, the risk engineering consultants are trained to know what to do to help.

“Our risk engineering team consultants have a wealth of knowledge and experience in the industry, as many of them have come from the contractor side,” said DeSilva.

“They have the training from the contractor seat and have the ability to review safety programs and identify hazards and offer recommendations for improvement. When you’re working through a labor shortage every day, it’s easy to overlook things. A new perspective from people who understand your industry goes a long way.”

The Hartford also has an Accredited Industrial Hygiene Lab dedicated to giving firms the opportunity to monitor and improve occupational health, further reducing workers’ comp claims and bolstering safety efforts to keep workers safe.

When a claim does roll in, claims professionals at The Hartford are ready to act: “We have medical clinicians who help manage claims, and data experts that are solely dedicated to claims. Our claims team is able to identify trends, highlight exposures and save on medical costs,” DeSilva said.

“The labor shortage is likely going to continue to be a challenge for the foreseeable future. How contractors handle the shortage will be a major factor in their performance and the reputation of their firm,” he added.

“The industry is continually evolving, and organizations that frequently update their safety and training programs are going to minimize and mitigate their exposure to loss.”

To learn more, visit: https://www.thehartford.com/business-insurance/construction.  

The information provided in these materials is intended to be general and advisory in nature. It shall not be considered legal advice. The Hartford does not warrant that the implementation of any view or recommendation contained herein will: (i) result in the elimination of any unsafe conditions at your business locations or with respect to your business operations; or (ii) be an appropriate legal or business practice. The Hartford assumes no responsibility for the control or correction of hazards or legal compliance with respect to your business practices, and the views and recommendations contained herein shall not constitute our undertaking, on your behalf or for the benefit of others, to determine or warrant that your business premises, locations or operations are safe or healthful, or are in compliance with any law, rule or regulation. Readers seeking to resolve specific safety, legal or business issues or concerns related to the information provided in these materials should consult their safety consultant, attorney or business advisors. All information and representations contained herein are as of August 2022.

The Hartford Financial Services Group, Inc., (NYSE: HIG) operates through its subsidiaries, including the underwriting company Hartford Fire insurance Company, under the brand name, The Hartford®, and is headquartered in Hartford, CT. For additional details, please read The Hartford’s legal notice at www.thehartford.com.

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.