Insurers
are concerned not only with the shortage of new workers but also with the aging
of the current construction industry workforce across the country.
The
insurance industry knows what the construction industry is going through as it
also has a graying workforce and experiences difficulty finding new
construction insurance specialists, according to industry professionals.
Overall,
construction payrolls are increasing, more projects are coming online and the
scope of work is increasing. According to Lockton Co.’s construction insurance
specialists (see article on page 24), insurance coverage is generally available
for both commercial and residential projects and pricing is stable with a few
exceptions.
The 2015
outlook is good, as total U.S. construction starts for 2015 are predicted to
rise 9 percent to $612 billion, compared with 2014’s estimated 5 percent
increase to $564 billion, according to the 2015 Dodge Construction Outlook,
published by Dodge Data & Analytics (www.construction.com).
The Dodge
report predicts that in 2015:
Commercial
building will increase 15 percent.
Institutional
building will advance 9 percent.
Single
family housing will rise 15 percent.
Multifamily
housing will rise 9 percent.
Public
works construction will improve 5 percent.
Only
electric utilities (9 percent decline) and manufacturing plant construction (16
percent decline) are predicted to see drops in construction starts in 2015,
according to the Dodge Construction Outlook report.
Rick
Keegan, president of the Construction Business Unit at Travelers, says that
right now the convergence of two trends – an aging workforce and a shortage of
new workers – has the potential to alter a contractor’s risk profile and put
pressure on their loss experience.
Matt Chase,
executive vice president and head of the construction practice for Pasadena,
Calif.-based Bolton & Co., says the shortage of quality labor is the
biggest concern he hears from construction companies also.
Keegan adds
that while the construction industry is just at the front-end of this
challenge, a workforce of older and less experienced workers has the potential
for a long-term impact from an insurance perspective.
“We track
statistics by industry segment and it shows that in certain segments about 40
percent of construction worker injuries occur during the first six months of
employment,” he said. “Worker inexperience and unfamiliarity in construction
site hazards really can lead to a significant increase in accidents as contractors
try to assimilate new workers. Not only do we see an increase in frequency, the
impact on the severity side is pretty significant as well.”
Add to that
the rising cost of medical, which now accounts for about 60 percent of workers’
compensation loss costs, and the trend becomes one worth noticing, he said.
At the same
time industry data shows that more construction workers are working longer,
which means that contractors also have the challenges associated with an aging
existing workforce, Keegan said.
“That can
result in having injured workers that can be more difficult to medically
rehabilitate post-injury and in turn maybe less likely to return to work in the
event that they do get hurt,” according to Keegan. The end result is an
extended disability period, increased medical costs and even more pressure on a
contractor’s workers’ compensation costs and experience.
Long-Term
Effects
Workers’
compensation is an early concern, but it is not the only concern.
While
construction labor woes tend to initially show up in the workers’ comp line,
Keegan says there is a longer-term effect in other contractor coverages.
Concerns
over construction defect issues are “absolutely something to watch,” he says,
suggesting that quality of work could suffer. “When you think about it from a
standpoint of potential construction defect exposures related to the job not
being done right – that’s a concern. The tail on that is dramatically longer so
it doesn’t show up as quickly,” he said.
Construction
specialist Jim Zimmermann, vice president with Dallas-based McQueary Henry
Bowles Troy (MHBT) LLP, agrees defects and quality of work are factors to watch
going forward, although he says carriers have not shown much interest yet.
“We haven’t
seen underwriters dig into the age breakdown of a construction company’s
employees, or at least show any real concern for it. With that being said, it
certainly could be an issue going forward,” Zimmerman said.
“The
biggest frequency of claims comes from employees in the first year of employment,
but the claims involving older workers are frequently much more expensive,” he
said.
Zimmerman
says for older workers the medical costs for injuries are higher, older workers
earn more and therefore are paid more in lost wages, and the recovery time from
injuries is much longer.
Aside from
an aging construction workforce, many skilled workers left the industry during
the economic downturn, another reason for the worker shortfall, says Dan
Horton, vice president and construction practice group leader for Orland Park,
Ill.-based The Horton Group.
“There was
a good portion of seasoned workers that retired or went away during those
years,” Horton said. “Now the industry has a real challenge … they can’t find
enough people to get the work done.”
Zimmerman
says that many subcontractors have told his general contractor clients that
they could hire five, 10, even 20 more people if they could find the skilled
labor they need.
“The work
is there; the employees are not,” Zimmerman said.
Another
problem, at least in West Texas where the oil and natural gas industries are
drawing economic growth, is the competition from other business segments for
employees. “There are stories of McDonald’s paying $15 an hour for unskilled
crew members in West Texas, so you can imagine the difficulty in finding,
compensating at a reasonable level, and keeping truly skilled labor,” he said.
Keegan says
while a lot of the attention has been focused on the need for construction
craft workers, the same issue exists for construction professional positions as
well. “In fact, a lot of the contractors we speak with actually cite filling
professional positions – such as project managers, construction superintendents
and safety professionals – as the biggest labor challenge,” Keegan said.
Construction
Specialists Needed
While the
construction industry struggles to fill a shortage in qualified labor today,
the insurance industry itself also struggles to fill a shortage of construction
insurance specialists, according to some.
“I
absolutely believe there is a shortage of young construction insurance
specialists,” MHBT’s Zimmerman said. “There are a relatively small number of
agents that have controlled the construction insurance and bonding marketplace
in many areas of the country, and that’s been for good reasons.”
Zimmerman
said many of today’s construction insurance specialists are considered experts
in either insurance and/or bonds, they’ve provided quality services to their
clients, and they are highly-respected within the industry. “However, speaking
very generally, the majority of those agents are closer to the end of their
careers than the beginning,” he said. “When those agents try to transition or
sell their business, there is often a serious drop-off in service.”
According
to Zimmerman, many construction-focused agencies recognized this need years ago
and have been hiring and training specialists to take over. “Those are the ones
that are going to thrive, not just because they will likely keep the business
they have, but because they will win the business from agencies that have not
had the same level of employee investment.”
The graying
insurance industry provides an excellent opportunity for younger construction
specialists to step up, Zimmerman says.
Bolton’s Chase
is one example of a younger specialist that has found success in construction.
Chase grew
up on construction sites. His father and grandfather owned and operated one of
Los Angeles’ largest commercial plumbing contracting firms. While Chase knew
the ins and outs of a construction project, he wanted to focus on the business
side more than the mechanical side.
“My uncle
referred me to Bolton because they wrote his bonds and they had a very good
reputation,” Chase said. But Bolton wasn’t the only agency that wanted to hire
Chase. His family’s construction business was a perk that came with his new
hire, or so he thought.
“But when I
met with the president of Bolton – Steve Brockmeyer – out of all the firms I
interviewed with, he’s the only one who said, ‘Yeah, we’ll hire you, but you’re
not allowed to write your dad’s account for two years. That made me feel like
they cared about me. They didn’t want to just hire me because of my dad’s
decent sized account.”
That began
Chase’s 10-year career at Bolton as an insurance construction specialist where
he’s helped grow the construction practice from near zero to about $30 million
in written premium.
“I think
that if you’re interested in the construction industry and you can relate to
the construction buyer, you can be successful at this,” Chase said.
The outlook
for construction specialists is good, says Horton, but the challenge for
agencies to find the right people will be much greater in the coming years.
“It’s not
just an issue of finding new construction specialists for agencies. It’s a huge
challenge just trying to attract the next generation of professionals” in
general, he says. “If you can figure out how to get young people into an agency
first, construction is one of the industries they might specialize in, but it
all depends on if the agency can get the next generation into the agency,
period.”
Source: http://www.insurancejournal.com