Filed Under:Risk Management, Corporate Risk

Construction hazards: The risk of not innovating

For contractors and insurers alike, playing it safe is the biggest risk of all

The construction industry has in fact had its share of innovations: alternative delivery systems like Public/Private Partnerships, Integrated Project Delivery and Building Information Modeling (BIM) aim to address construction clients’ changing needs. (Photo: Shutterstock)
The construction industry has in fact had its share of innovations: alternative delivery systems like Public/Private Partnerships, Integrated Project Delivery and Building Information Modeling (BIM) aim to address construction clients’ changing needs. (Photo: Shutterstock)

The construction and insurance industries have many things in common. Both industries have a long, venerable history, and both are dealing with an aging workforce and the challenge of developing new talent. Both also have been operating recently in a prolonged competitive market with slim profit margins, requiring strong risk management 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 of innovations: Alternative delivery systems like Public/Private Partnerships, Integrated Project Delivery and Building Information Modeling aim to address construction clients’ changing needs. Other examples include Green Building, modular construction, automated equipment and the inclusion of 3-D printing. We are also now seeing all kinds of digital monitoring devices for human behavior, atmospheric conditions, waterflow, security and video records with cameras and lasers on drones.

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

From my perspective, innovation comes in many ways but often takes shape as an enhancement, an expansion, an evolution — and occasionally, we see a revolution. The revolution-type, larger innovations are harder to come by and usually require a dedicated team focused on it full time for some period of time. This is where many start-ups in both InsurTech and 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 help drive more innovation. Construction firms have been active in this space too. For instance, Caterpillar Inc., the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives, created its own VC, Caterpillar Ventures. And more are getting involved. In November 2016, San Antonio-based construction equipment giant HOLT CAT launched HOLT Ventures, and in March, Mexican construction material producer Cemex announced the launch of its Cemex Ventures. 

According to a recent report by CB Insights, while funding to construction tech lags that of other industries, the industry has grown in recent years. Since 2013, the construction tech industry has seen $1.08B invested across 207 deals. And in 2017 thus far, some $169 million in disclosed funding across at least 25 deals to construction tech companies. These strong numbers indicate growing demand for construction tech products.

Construction site

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

Fueling Innovation


Smaller innovations — those enhancements, expansions and evolutions — can happen more frequently from all parts of an organization 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 corporate culture is so important.   In fact, innovation must be the expectation, not the exception. There is a variety of ideas out there about what’s needed and how to get the ball rolling. Personally, for me, one process that has proven successful is Rapid Results Initiatives (RRIs). RRIs are lower risk projects that empower teams to try something new to generate a result in a short time frame (typically 90 days) to prove or disprove a hypothesis or solve a problem. For instance, how can we improve our loss ratio by one point?  How can we sell one other insurance product to an existing client?  

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

Innovation does not arise in a vacuum; it comes from a need. To determine what’s needed and what we can do about it, we all need to listen to our customers. And there are plenty of opportunities to do so — key industry conferences like IRMI’s Construction Insurance Conference, customer meetings, claims reviews, and risk engineering sessions. It’s important to take advantage of every customer interaction opportunity, listen better, capture what we hear and use this information to consider new ideas and innovations.  

Big ideas in action


An interesting thing about innovation is that it’s boldly collaborative. It requires sharing of ideas and resources — among competitors, customers, new business partners like tech start-ups, trusted business partners like our agents and brokers — to make it happen.  

A lot of that is happening. Consider the development of Pillar Technologies, which recently secured a $2.75 million in seed funding from XL Innovate, Hyperplane VC, and Techstars Ventures. Pillar deploys industrial-grade sensors across construction sites to address high-value risks during and after construction by actively monitoring key environmental factors, such as temperature, pressure, humidity, smoke, and dust. General contractors and insurers are using the Pillar data management platform to monitor sites, forecast failures, and be alerted to costly hazards such as water leaks, freezes, fire, mold risks and more. The ability to give customers access to better decision-making not only helps their business but also allows us to see how these new technologies will change the insurance marketplace.

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

Innovation leads to competitive advantages. Without innovation we are no different than everyone else; we are a commodity. Neither contractors nor insurers can afford to be a commodity.    

Someone on my team recently quipped, “There are no brakes on the innovation bus.” From a risk management perspective, that may sound unsafe. From an innovation perspective, for both contractors and their insurers alike, playing it safe is the biggest risk of all.

Related: Working on a Dream

Gary Kaplan is president of XL Catlin’s North America Construction business.   

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