News & Insights

A pre-pandemic survey by the National Association of Homebuilders found that 85% of builders ranked labor shortage as their top concern. Some attempt to make up for it by hiring unqualified workers, which creates potential construction risks for insurers.

“We must verify that the contractor is licensed and see executed sub-contractor agreements,” Garcia says. “In areas that don’t require licenses for trades, we look at experience and loss history to make an educated underwriting decision.”

Written agreements between contractors and subs should indicate:

• Necessary limits
• Indemnity for the insured
• Additional insured status

“We want to know that general contractors are hiring insured subs, and if trade contractors have their own employees,” she says. “With employees, there’s a little more control. A sub might leave to find other work and affect the turnaround of the job.”

Environmental damage, such as water intrusion, can go unnoticed and create costly issues.

For example, a structure’s HVAC system that isn’t operating to standard can cause mold buildup – an obvious health hazard that requires extensive cleanup or replacing the affected materials, and potentially replacing the HVAC system altogether.

“Anything that is sitting is not being watched closely, and that always poses issues,” Garcia says. “Costs are increasing, so profit is lessening on already tight margins. In some cases, contractors are paying to get off a project because they can’t make money after the increased product prices.”

That can create further delays and prompt builders to request coverage extensions. Underwriters will need to determine if it’s a smart risk to take.

Ideally, when projects go on hold, equipment isn’t left behind at the site. Most heavy machinery, for example, must be greased and used often to continue working properly (in the same way a car often won’t run if it sits still for too long).

Not knowing the condition of equipment – or even the integrity of the structure itself – opens potential safety risks on the job site.

Of the 5,333 people who died from a work-related injury in the private sector in 2019, nearly 20% were employed in the construction industry, according to the Bureau of Labor Statistics.

Domestic supply shortages and transportation delays have led project managers throughout the industry to source lumber from outside the U.S. or opt for alternatives such as cross-laminated timber and steel.

“The biggest construction risks are not knowing exactly where lumber is coming from or what the regulations are in that country, and when using a product that you aren’t familiar with, knowing the dos and don’ts of that product,” says Kate Garcia, Assistant Vice President of Middle Market for Argo Construction.