The construction and insurance industries have many things incommon. Both industries have a long, venerable history, and bothare dealing with an aging workforce and the challenge of developingnew talent. Both also have been operating recently in a prolongedcompetitive market with slim profit margins, requiring strong riskmanagement practices to navigate successfully.

Additionally, neither industry has been regarded as being overly innovative.Fortunately, that perception is changing.

The construction industry has, in fact, had its share ofinnovations: Alternative delivery systems like Public/PrivatePartnerships, Integrated Project Delivery and Building InformationModeling aim to address construction clients' changing needs. Otherexamples include Green Building, modular construction, automatedequipment and the inclusion of 3-D printing. We are also nowseeing all kinds of digital monitoring devices for human behavior,atmospheric conditions, waterflow, security and video records withcameras and lasers on drones.

Construction is driven by projects, and that's why my team hasadopted a project-centric leadership, planning and execution model.We use the model every day to drive growth by listening to theneeds of our clients and turning the best ideas into projects thathelp drive innovation.  

From my perspective, innovation comes in many ways but oftentakes shape as an enhancement, an expansion, an evolution — andoccasionally, we see a revolution. The revolution-type, largerinnovations are harder to come by and usually require a dedicatedteam focused on it full time for some period of time. This is where many start-ups in both InsurTechand Con-Tech are looking to make their mark.

Many insurers have launched their own venture capital (VC)initiatives, including XL Catlin's XL Innovate, as a means to helpdrive more innovation. Construction firms have been active in thisspace too. For instance, Caterpillar Inc., the world's leadingmanufacturer of construction and mining equipment, diesel andnatural gas engines, industrial gas turbines and diesel-electriclocomotives, created its own VC, Caterpillar Ventures. And more aregetting involved. In November 2016, San Antonio-based constructionequipment giant HOLT CAT launched HOLT Ventures, and in March,Mexican construction material producer Cemex announced the launchof its Cemex Ventures. 

According to a recent report by CB Insights, while fundingto construction tech lags that of other industries, the industryhas grown in recent years. Since 2013, the constructiontech industry has seen $1.08B invested across 207 deals. And in2017 thus far, some $169 million in disclosed funding across atleast 25 deals to construction tech companies. These strong numbersindicate growing demand for construction tech products.

Innovation does not arise in a vacuum; it comes from a need.To determine what's needed and what we can do about it, weall need to listen to our customers. (Photo:Shutterstock) 

Fueling Innovation

Smaller innovations — those enhancements, expansions andevolutions — can happen more frequently from all parts of anorganization to make a big collective impact. Several things help —a corporate culture that supports innovation, a process to execute,freedom to do it and customers.  Innovation meets a need.It's often customer problems that lead to product ideas.    

People must feel empowered to innovate. That's why corporateculture is so important.   In fact, innovation must be the expectation, not theexception. There is a variety of ideas out there about what'sneeded and how to get the ball rolling. Personally, for me, oneprocess that has proven successful is Rapid Results Initiatives(RRIs). RRIs are lower risk projects that empower teams totry something new to generate a result in a short time frame(typically 90 days) to prove or disprove a hypothesis or solve aproblem. For instance, how can we improve our loss ratio by onepoint?  How can we sell one other insurance product to anexisting client?  

RRIs are not only effective change management tools, they alsoboost morale, enhance participant leadership skills, inspirecreativity and especially for our discussion here, spur innovation. 

Innovation does not arise in a vacuum; it comes from a need. Todetermine what's needed and what we can do about it, we all need to listen to our customers. Andthere are plenty of opportunities to do so — key industryconferences like IRMI's Construction Insurance Conference, customermeetings, claims reviews, and risk engineering sessions. It'simportant to take advantage of every customer interactionopportunity, listen better, capture what we hear and use thisinformation to consider new ideas and innovations.  

Big ideas in action

An interesting thing about innovation is that it's boldlycollaborative. It requires sharing of ideas and resources — amongcompetitors, customers, new business partners like tech start-ups,trusted business partners like our agents and brokers — to make ithappen.  

A lot of that is happening. Consider the development of PillarTechnologies, which recently secured a $2.75 million inseed funding from XL Innovate, Hyperplane VC, and TechstarsVentures. Pillar deploys industrial-grade sensors acrossconstruction sites to address high-value risks during and afterconstruction by actively monitoring key environmental factors,such as temperature, pressure, humidity, smoke, and dust. Generalcontractors and insurers are using the Pillar data managementplatform to monitor sites, forecast failures, and be alerted tocostly hazards such as water leaks, freezes, fire, mold risks andmore. The ability to give customers access to betterdecision-making not only helps their business but also allows us tosee how these new technologies will change the insurancemarketplace.

But we need to push for more. These kind of innovations aregoing to help our construction clients improve productivity,safety, quality assurance, subcontractor selection and management,planning and documentation management — all of which can makeconstruction firms better risks for us as insurers and give us theopportunity to provide even better products and services for ourconstruction industry clients.  

Innovation leads to competitive advantages. Without innovationwe are no different than everyone else; we are a commodity. Neithercontractors nor insurers can afford to be a commodity.   

Someone on my team recently quipped, "There are no brakes on theinnovation bus." From a risk management perspective, that may soundunsafe. From an innovation perspective, for both contractors andtheir insurers alike, playing it safe is the biggest risk ofall.

Related: Working on a Dream

Gary Kaplan is president of XL Catlin's North AmericaConstruction business.