While COVID-19 is waning, its impact on both market demand and global supply chains continues to alter risk profiles for large-scale projects across Canada. The impact is particularly apparent in Canada’s commercial and residential construction sectors.
“We’re still seeing extended delays,” says Thomas Strong, NFP’s senior vice president of construction technology and innovation. “Commercial office markets really slowed down. The demand for office space slipped quite a bit. So now maybe the risk is, what do you do with these underutilized assets, and how do you convert them for different uses?”
Alongside these demand shifts, commercial and residential builders are working to incorporate new materials and building processes. While these efforts can make builders’ end products more appealing, they also present risks that insurance brokers must consider.
“We all want to do better as we manufacture and construct buildings. There is a lot more emphasis on producing better performing building envelopes, more energy efficient heating and cooling systems, and [also placing] more emphasis on the supply chain; understanding where these materials come from and their impact from a carbon standpoint,” he says.
Assessing risk appetite
Insurance carriers adjust their risk appetites based on trends in particular markets, as well as the frequency and severity of claims for a specific region or type of project, adds Strong.
“What we have to do is make sure we fully understand how the carriers are thinking and what their appetite is for risk of different types, so we can bring the right risk to the right carrier to get the best rate for our clients,” he says.
For example, residential construction has varying risks depending on whether it’s low- or high-rise.
“Often residential is wood framed, so it’s more susceptible to fire and water damages,” he notes. “Losses on wood frame have been higher, therefore the cost has gone up. Or some carriers would just say, ‘We don’t want to do that,’ or they want to see a particular technological risk control applied.”
That can include something as straightforward as 24-hour monitored security cameras that provide a full view of a job site’s perimeter and are equipped with loudspeakers.
“The speakers can be used to tell intruders to go away, and that the police are on their way,” Strong says. “This has a meaningful effect on reducing vandalism, arson and other risks related to wood frame.
“Insurers are actually starting to say: ‘We want to see these things in certain cases as a condition of coverage.’”
Water is another factor insurers want construction managers to mitigate.
“Some of the carriers will either give you a lower deductible or lower premium if you put in water mitigation systems, like smart water valves or sensors,” he says.
Those smart valves are among the various internet of things (IoT) devices now being deployed on job sites to control and monitor risks.
“Water is one of the major causes of losses during construction and after construction,” he says. “These valves use AI [artificial intelligence] to analyze water usage, and if they detect a leak, they can just automatically shut off or send an alarm to the facilities’ management group to go investigate. It’s a great example of a technology that can have an immediate value of reducing risk.”
Bigger projects, bigger risks
Among the highest risks commercial insurers face when working with the construction sector is heavy civil transport, like subway and rail systems.
These huge projects present general contractors with major coordination requirements, extensive technology applications and the risk of numerous unforeseen conditions related to the presence of underground utilities.
“Because these projects are so big, they can have an inflationary effect on the local market, because we’re already operating in an environment of labour shortage and supply chain constraints,” Strong tells CU. “As all this work comes on the market, skilled labour scarcity goes up, so the cost of labour can go up.”
Related risk factors include logistics surrounding work in dense urban environments, which drive up construction costs and complexity. Because many Canadian cities haven’t developed mass transit projects for decades, he notes some of the expertise in the area needs to be rebuilt.
“There are many options to mitigate risk. Sometimes you might choose to buy an insurance product that covers your risk. Sometimes you choose to cover that risk yourself,” Strong says.
“There are strategies that can be deployed to reduce the project risk profile. This is important work because there there’s a million ways for things to go wrong and few ways for it to go right.”
Feature image courtesy of iStock/Edwin Tan
