Construction industry a vibrant but challenging market
Posted on July 13, 2022
Construction has been booming in the United States over the past decade as the nation continues to grow. In fact, construction is among the top industries in, hitting an annual spending rate of $1.365 trillion in 2019, according to the Census Bureau, and earning another trillion in federal funding last fall for infrastructure.
Constituting approximately 4.25% of the national GDP, construction is also one of the fastest-growing industries in the country. Experts project its growth in the next decade somewhere between 4% and 8%, well above the average for the nation as a whole.
Population growth and construction demand have led the industry to a steady increase in development – across the U.S., building permit numbers have steadily increased every year since 2009. Last year, permits saw the largest increase in fifteen years or more, jumping from 1.47 million permits issued in 2020 to 1.73 million in 2021.
While the construction boom is good for business, it can highlight or even intensify the risks in an already risky industry, making it even more difficult for contractors and their insurance agents to find affordable and appropriate coverage.
High demand can mean tight deadlines, which can lead to mistakes and defects. Tight deadlines can require companies to push through projects, even during periods of bad weather. Various regions of the country face different kinds of weather, meaning that nationally operating companies must consider several different factors when planning their operations. For instance, during hurricane season, the Gulf and Atlantic coasts face greater risk from rain and high winds. When companies take on projects within the Atlantic hurricane season, there’s also risk of weather damage that can impact the structural integrity of the building well after a storm has passed. On the other side of the country, wildfires and earthquakes are far more likely to impact construction operations, and West Coast states often have stricter building codes dictating what can be built and how it must be built. All weather risks are difficult to predict and can be costly to account for, but they’re certainly riskier and more costly to breeze past or forget about.
Changes to the landscape of the job market, due to the pandemic, have brought a major gap between people able and willing to work and employers seeking to hire. A recent survey found that 74% of construction firms throughout the country plan to hire new people. As the worker pool is small and the pool of companies hiring is large, construction firms will likely take on new hires wherever they can, but because of this worker shortage, they’re often hiring workers with less experience or making do with fewer hands onsite. This can lead to both an increased likelihood of accidents on site as well as the potential for lower-quality work.
In addition to hiring issues, construction companies are facing higher material costs, increased health care costs, increased technology demand and cost, and increased costs of labor. With expenses like these increasing day by day, making room in the budget for insurance, especially in higher-risk situations or after a loss, can get more and more difficult.
Construction firms in specific areas can face several unique challenges. For instance, extra building codes in Florida are designed to ensure structures withstand hurricanes, land elevations at or below sea level, and an abundance of marsh or wetland. This can make it challenging to find an area with firm enough ground for a building’s foundation, and changing the landscape to make it easier can be very costly. In California, building codes are geared toward protecting structures against earthquakes, and some state laws create some complex obstacles when considering environmental impact. In the Pacific Northwest and northern parts of the country, like Washington and Oregon, air conditioning isn’t needed year-round, but structures still need to be built with sufficient ventilation and airflow in mind. Further south, like in Texas and Arizona, some building materials are better than others because of their natural insulation against the sweltering heat, but they may be more costly than the typical materials a builder might choose in a cooler area.
Additionally, high average annual rainfall – above the long-term average in 2020 per NOAA statistics – makes waterproofing a high priority across much of the country and has led to major disasters previously in the construction industry. When done incorrectly, poor waterproofing leads directly to water damage, which causes rot, degradation of concrete, and even structural collapse. Regardless of where a construction project is located in the country, it’s crucial to keep the potential for water damage in mind.
Specific construction-related insurance challenges exist for managers who have experienced a loss, as well as those who take on higher-risk work.
Since 2016, Aspera has found Commercial Casualty insurance solutions for construction risks. We work with our markets to craft coverage for professionals within all levels of the industry, ranging from artisan contractors, new residential and commercial construction, renovation and remodeling, and 100% paper contractors, by adjusting premiums and coverage to suit individual needs. We make the hard-to-insure easy to please, with a proven track record on construction accounts despite risk or loss.
One particular account brought to Aspera was a construction manager who began a crane operation. The existing insurance carrier was uncomfortable with covering the crane operation element of the business, so the agent reached out to Aspera for help. Because Aspera has an appetite for hard-to-insure accounts, we were able to find coverage. With our priority on service and expediency, we worked with our carrier to return a quote for this account to the agent in less than 24 hours. The account was bound within another week, and we recently renewed it for a second year.
While there are challenges with insuring construction companies, the need for insurance is high. Construction companies can be a good market for insurance agents to tap into, particularly since growth is strong in most places across the country. Many of the associated risks, however, require creativity and experience to put together affordable and reasonable solutions that make sense for each client, and Aspera has those in spades.
Learn more in the Rough Notes Florida Special Report 2022.