With the economy on the upswing, a higher quantity of new projects and numerous changes in the industry, contractors are faced with a volume of new potential risk factors that, if ignored, could greatly affect their businesses Construction Business Owner sat down with risk management professional Steven Davis, of McGriff, Seibels & Williams, to talk about the biggest risks currently affecting business owners and how to mitigate them.
CBO: What current industry risks should construction business owners be constantly aware of?
SD: We are seeing quite a few industry risks being presented in the upcoming term, including contractual, type of work, complacency on the part of the owner and workers' compensation issues. The challenge with contractual risks has to do with the additional insured language and indemnity contained in contracts.
The current version of the additional insured endorsement limits coverage being provided, both on an ongoing and completed operations basis, to how the insurance requirements inside of a contract are stated. This new language can leave either a gap in coverage or limits to the overall coverage. In addition to additional insured, it is important that the appropriate indemnification language inside contracts is being utilized. These are two crucial items when dealing with subcontractors.
Renovation exposure is on an uptick, which presents a major risk for damage to the existing structures of the project. This type of exposure puts a company's general liability policy at risk. It is important to negotiate proper existing structure coverage inside of the"builder's risk" policy, either by owner or the contractor. In addition, residential construction is also on the rise. This will result in a lot more projects being exposed to construction defect claims that could affect a contractor's practice program or general liability only wrap-ups.
The current state of the insurance marketplace is relatively competitive. This presents the risk of complacency on the contractor side. With the marketplace as is, contractors can steer away from safety and loss control because rates are trending downward. This can result in claims that can have an effect for years to come.
For such contractors in New York and Illinois, labor law continues to be a major challenge that faces general contractors. Labor law claims are averaging $1.5 million or more just on soft tissue injuries. Contractors should focus on safety and loss prevention in these areas.
Lastly, medical costs are continuing to increase for workers comp claims. It is important to manage workers' compensation claims on the medical side and not focus only on the indemnity costs. Risk managers need to work closely alongside the insurance carrier and their adjusters to ensure that all areas at risk are covered.
CBO: What portion of a budget should be allocated for risk management?
SD: This amount differs between individual contractors and the scope of work the company performs. Risk management is an important tool for a company's overall success and profitability. From a risk management department perspective, it is recommended that contract review, loss control and claims capabilities are assessed and highly prioritized to reduce overall risk.
CBO: How can business owners prepare for the risk involved in hiring younger, inexperienced workers?
SD: Contractors should include orientations, continuous training and work shadowing. Statistics show that new hires have the highest percentage of claims in the first two weeks of employment. These orientations should include company safety protocols, a safety overview and information about how the company operates on a day-to-day basis on a jobsite. Any time spent on risk management training with new employees will benefit the company as a whole.
CBO: How is technology currently impacting risk on the jobsite?
SD: Technology impacts are becoming more visible in the many opportunities for tracking and monitoring capabilities: contractor performance, safety inspections and observations. This information can be collected and shared with many jobsite shareholders seamlessly. The tattletale system utilizes drive cameras, which aid in reporting theft and vandalism. Systems can also provide real-time accident reports and vehicle speeds.