This post is part of a series sponsored by IAT Insurance Group.
The construction industry faces new challenges every year, 2024 is no exception. In 2023, he had a 19.7% jump, but(1) Regarding spending on non-residential buildings, many experts believe that construction spending will slow in 2024.(2) This was mainly due to a decline in financing for new construction projects due to soaring interest rates.
This could impact how many people in the construction industry work on protecting assets. Fortunately, there are ways to alleviate potential challenges next year. Here are his three trends and best practices that can help you and your organization move forward into 2024 with confidence.
1. Contractual Purchase Restrictions
Many small construction companies now carry minimum insurance coverage required by their contracts in order to stay in business to save money.
Subcontractors of major general contractors try to buy at the lowest limits possible, but most contracts with developers require coverage of $1 million to $2 million. Uninsured subcontractors who specialize in a particular field typically receive the minimum amount of coverage required by their contract.
Increased reporting, labor and material costs are the main drivers of these changes. A shortage of skilled labor also makes it difficult for small businesses to compete with large companies for jobs, and an expected slowdown in new construction could further contribute to this trend.
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Poor insurance coverage can increase a construction company’s potential liability. The best way to approach this trend is to Finally, take steps to reduce potential risks.
Safety plan implementation To reduce liability risks. If you have a risk manager, get them involved in this goal. If not, a more accessible way to manage potential risks is to use warranty, we guarantee your work or promise to resolve any customer complaints that arise within the warranty period. This helps manage risk and costs and reduces the likelihood of claims.
2. Expanding reuse in construction projects
In 2024, reuse-type projects are likely to be commissioned in the construction industry.
Hybrid and remote work is now the norm for approximately 41% of full-time employees.(3) The need for formal office space will decrease and the need for living space will increase. While this demand is primarily driven by demographic change, which is less prone to large-scale, rapid changes, demand for office buildings is driven by the impact of inevitable technology-driven innovations in the way people work. receive.
For this reason, vacant condominiums and apartment buildings are rare, but vacant office buildings occur in many cities. More developers are capitalizing on this change by converting old office buildings into residential space to meet housing demand, and this trend is likely to grow further next year.
Due to increased costs and competition for funding in recent years, as well as changes in the way we work and live, increased demand for reuse projects is likely to replace some of the current new build market.
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Much of the risk in this trend lies in whether the repurposed residential building has one or multiple owners. For example, in rental apartment complexes, she is usually the only owner of the entire building, which reduces the risks associated with construction defects. If each unit has an individual owner, such as a condominium or co-op, the construction company is at greater risk of being sued for construction defects. This is especially likely when larger claims arise, such as leaking windows or leaking roofs.
Insurers recognize this increased risk, so insuring a building that is repurposed into a condominium typically costs more than insuring the construction of rental apartments. However, insurance companies also consider a construction company’s reputation and track record, i.e. the skill set developed in different types of buildings, when determining premiums.
If your company plans to pivot to building or renovating certain types of buildings, Please take the time to understand the risks. Finding insurance for a new business may cost more due to inexperience with that type of construction, which translates to greater risk for the underwriter. Without a loss history or reputation for quality to guide in their decision-making process, underwriters default to offering higher coverage to compensate for the risk of insuring a company.
3. Rising costs
The cost of almost everything has gone up in recent years, from supplies to labor to insurance premiums. Rising inflation has increased the cost of liability insurance. Medical costs and legal fees increased the total bill. Additionally, the rise in liability insurance costs is due to social inflation caused by changes in public sentiment regarding settlements and judgments.
Labor issues may also contribute to higher costs in 2024. A shortage of skilled workers with experience in specific occupations can lead to an increase in workplace injuries. This increases workers’ compensation claims for businesses and increases insurance costs. It can also lengthen project completion timelines and result in lower quality products. For companies that are able to secure skilled workers, increased demand means higher costs.
Rising interest rates could further impact costs. Borrowing costs are at their highest in years,(Four) It becomes more difficult to obtain the funds needed to proceed with construction projects. If interest rates remain high through 2024, many construction projects are likely to face delays.
There are also material costs. Supply chain issues brought about by the COVID-19 pandemic have significantly increased the price of raw materials, and prices have not yet stabilized.
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Although rising costs for goods and services are almost inevitable, there are several insurance-related strategies that can help protect your construction company’s bottom line in 2024.
If you run a major construction company, Loss-sensitive programs can be the key to reducing costs. This is a type of self-insurance that allows a company to pay lower premiums and cover losses up to the deductible. If your company’s losses improve over time, this strategy can help you enjoy lower premiums and help you manage your insurance costs.
For small and medium-sized enterprises, Exposure management is important. you would like to too Evaluate the potential impact of compensation costs. To keep costs down, many small construction companies buy only what the state needs to do the work, but this can backfire if they end up with high bills.
A small construction company Consider self-insurance Or “strike bare” your coverage – take the time to understand the risks before doing so. For example, if you have a claim that settles for $3 million and you only purchased $1 million in coverage, the company will be billed for her remaining $2 million.
Overcoming the impact of construction insurance competition
Competition in the construction insurance market is increasing and with the influx of new entrants into the construction insurance industry, competition is likely to continue into 2024. At the same time, nuclear judgments and social inflation are increasing, and claims costs are rising accordingly. The long-tail nature of construction claims is appealing, as many carriers are also reporting an increase in real estate and CAT-related claims.
What can you do?
Keep continuity of coverage in mind As we move through this landscape. After working with an insurance company for a while, you will be able to understand their terms and conditions, disclaimers, staff members, and how claims are processed. Continuing coverage also helps ensure that carriers understand your industry and unique needs, which can go a long way in resolving claims quickly. Additionally, if you have a good loss history with the same carrier, you may be able to reduce your compensation costs. Continuing coverage with your carrier can also ensure that there are no gaps in your coverage.
Additionally, it is wise to: Implement risk management and safety programs. Having a full-time safety/risk manager helps companies develop a formal and executable safety and risk program. A successful risk management program may include measures such as maintaining facilities and equipment, verifying subcontractors’ certificates of insurance (COI), and having a safety team to reduce risk for your business.
Above all, definitely Check not only the price but also the coverage When considering switching insurance companies. Comparing coverage requires a thorough evaluation of what’s on offer. It’s not just a price-to-price comparison.
For guidance on how to manage risk across construction projects and portfolios in 2024, please visit Contact IAT Insurance.
(1) Architectural design + construction”Leading economists call for a 2% increase in construction spending in 2024July 2023.
(2) American Institute of Architects”Nonresidential construction spending is expected to remain subdued until 2024January 2023.
(3) Forbes advisorRemote work statistics and trends in 2023June 2023.
(Four) Investopedia”Fed keeps interest rates at 22-year highNovember 2023.
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