Construction risk management is undergoing significant changes as traditional methods struggle to keep up with modern demands. Rachel Dobbs, a client executive at Hylant, noted that construction projects are becoming more intricate, involving a larger number of stakeholders and higher stakes. This shift is leading to new ways of handling risk, with joint ventures and public-private partnerships becoming more common.
One major change is the move away from individual insurance programs for each contractor. Instead, many projects are now using centralized insurance models known as owner-controlled and contractor-controlled insurance programs (CIPs). These programs provide consistent coverage across all contractors, which helps to eliminate gaps and overlaps that have long plagued the industry.
In places like Florida, where the residential construction market can be chaotic, having consistent coverage is crucial. Dobbs pointed out that definitions of coverage can vary widely, making it challenging for project owners to ensure that all aspects of their projects are adequately insured. Even smaller projects are increasingly adopting CIPs to maintain coverage continuity.
While these centralized programs can lead to cost savings, their main advantage is ensuring that coverage remains uninterrupted. This is particularly important as supply chain issues become more prevalent, especially with equipment and materials sourced from overseas. Many standard builders’ risk policies do not address delays caused by these supply chain disruptions, prompting the rise of project cargo policies that include coverage for completion delays.
Standard contracts often fall short in protecting contractors, so Dobbs advises them to consult brokers before signing. Many attorneys may not be up to date on the latest insurance and indemnity clauses, but brokers can offer valuable insights. For instance, if a builder’s risk policy has a high deductible, it can leave contractors responsible for significant costs. To mitigate this risk, contracts can include limitations on liability for deductibles.
Dobbs also highlighted the importance of clear communication regarding insurance requirements. Unrealistic demands from project owners can lead to compliance issues later on. While indemnity clauses are useful, they have limitations. In some cases, builder’s risk coverage can be more effective in keeping projects on track when complications arise.
Environmental coverage is also narrowing, with exclusions for pollutants like PFAS becoming common. In humid states such as Florida, mold and fungus exclusions are prevalent. Securing mold coverage, especially for remediation contractors, can be particularly challenging, making it essential to work with knowledgeable brokers.
Cybersecurity threats are on the rise in the construction industry. Dobbs reported that several large contractors have faced cyber incidents in the past year, often involving invoice manipulation and unauthorized payments. These attacks can go unnoticed for weeks, causing significant financial losses.
To combat these risks, having a comprehensive cyber policy is crucial. Such policies not only provide financial reimbursement but also include access to experts who can guide companies through the recovery process after a cyber incident.
As the landscape of construction risk evolves, clients now expect more from their brokers than just insurance policies. They want expert advice tailored to their specific needs. About half of the top-performing contractors have shifted to captive insurance programs, which allow them to better manage their risks and often result in lower premiums.
Overall, as construction risks continue to change, the strategies for managing them must adapt as well. The conversation around insurance is no longer just about policies; it’s about building partnerships and preparing for the future.