As the specter of a potential double-dip recession looms over the economy, the construction industry continues to struggle with the effects of the first dip. In 2010, the national unemployment rate among construction workers was 20.6 percent, almost twice what it was in 2008 (10.6 percent) and more than three times higher than the rate in 2006 (6.7 percent), according to the Bureau of Labor Statistics.
In 2011, there have been some encouraging bright spots in the area of infrastructure construction, said Thomas Grandmaison, a senior vice president with Boston-based Lexington Insurance Co., the leading U.S.-based surplus lines carrier. But residential building remains stagnant, with housing having yet to return to its peak in 2007. The commercial sector is not doing much better, Grandmaison said. "Office vacancies are at all-time highs, and in our assessment, there is not a lot of new retail or new hotel construction of any significance anywhere around the country."
Like its customers in the construction arena, Lexington has witnessed the effects of the economy in today's marketplace. But as a carrier with a long-term commitment to the construction market, it continues to write policies and looks for ways to deliver value to contractors still coping with the slowdown.
"Lexington is financially strong with a very experienced staff," said Grandmaison, who has worked in the insurance industry for nearly 25 years. "We have talented groups that specialize in construction and are dedicated to claims service, loss control and safety. They know the types of issues that contractors are dealing with every day, and they understand how to help them manage their risks."
Chief among the risks today is understaffing and underbidding. It's tempting for contractors to try to do more with less--and to slash bids to win work--but safety and quality may suffer as a result. Heightened competition is another risk, both for contractors and their insurers. More contractors are bidding on every project, driving down prices, and new carriers are coming into the insurance market.
But premiums are not the only factor to consider in weighing insurance options, Grandmaison said. Contractors should pay attention to the financial strength of the carriers behind them, their long-term commitment to the industry and the infrastructure they've built to back up their promises.
The wrong choice can end up costing companies in the long run, even if they save upfront, Grandmaison said. For example, coverage may not be as deep as they thought, they might face expenses that they didn't anticipate, and it might take longer than expected to process their claims. In addition, they risk missing out on additional services and programs that can help them navigate a challenging economic landscape.
Lexington has substantial resources devoted to its customers in the construction industry. The carrier provides a range of products and services that help mitigate risk and protect against potential losses.
One contractor might ask Lexington to provide field engineers to monitor projects on-site. Another might tap into the Web-based risk management software provided by Global Loss Prevention, a division of Chartis. The GLP RiskTool SystemSM features a multitude of resources for risk managers and safety professionals, whether they are building a safety and loss-control program from scratch or simply want to augment what they are doing already.
"In today's world, some contractors have cut and cut to the bone, and they may not be able to absorb the expenses of the safety and loss control program they once had," Grandmaison said. "So they appreciate the quality services that we can provide them, which are often more cost-effective than hiring a consultant or adding in-house staff."
When a construction loss does occur, Lexington handles the claim with staff members focused exclusively on the construction industry. They possess, on average, 18 years of experience.
Lexington draws from the same deep well of expertise to develop new products that dovetail with today's evolving business opportunities. A product called Lex Idle Asset Liability Protector®, for example, addresses the needs of contractors or owners taking over distressed assets, such as construction projects that are incomplete or completed projects that are still vacant.
"These projects raise a host of unique insurance exposures," Grandmaison said. "Most of the insurance market is not interested in looking at them. Lexington, however, is willing to work to understand and accept some of those risks, and we are creating programs to take them on for our clients.
"We're definitely continuing to see opportunities to innovate in this space as a result of the ongoing economic climate, although it varies from state to state and region to region. The opportunities for creating these types of new products could continue to grow if the economy dips again," Grandmaison said.
But given the damage caused by the latest recession, Grandmaison is cautiously optimistic that the country can avoid a repeat. "My hope is that we've bottomed, that it can't get any worse and that we'll start to see some improvement," he said.
Some good news is already on the horizon. Although construction of homes, offices and retail centers remains stalled, companies and governments are spending on rail and power projects, as well as water and wastewater treatment facilities, Grandmaison said.
Lexington also is targeting opportunities to enhance coverages and develop new insurance solutions for the alternative energy field, he added. "That's an area for which we have some high hopes."
However the construction market and the economy ultimately evolve, Lexington plans on maintaining its commitment to the construction industry. "We're a long-term player in this market," Grandmaison said. "And we intend to remain one."
(The above piece is part of our continuing Perspectives series designed to highlight key products and services to our readers. This paid-for Perspective was written and edited by Risk & Insurance®
on behalf of our marketing partner. Additional Perspectives can be found on our Web site at www.riskandinsurance.com/.)
November 1, 2011
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