The construction industry continues to rebound.
According to the "2017 Dodge Construction Outlook," total U.S. construction starts in 2017 are predicted to rise 5 percent over 2016 levels to $713 billion. That projected increase follows an estimated gain of 1 percent in 2016 and 11 percent in 2015.
The sectors seeing the most upswing are single-family housing, commercial building and institutional building. As these numbers suggest, the construction industry has entered into a more mature phase of its expansion.
The biggest challenges in the complex construction and property area are how to leverage sophisticated modeling programs, new technological tools and techniques to help contractors and developers prevent and mitigate losses, including those resulting from climate change and especially severe weather.
Contractors and developers want a more sophisticated approach to risk management and capital allocation, operational efficiency and supply chain management.
Building Information Modeling is one technique quickly becoming adopted by the industry.
The process of creating digital models has proven highly beneficial for assessing risks on job sites. Better technology has helped Austin, Texas-based Technical Risk Underwriters, the construction risk undwriting business owned by Chicago-based Ryan Specialty Group, to precisely analyze risk exposures for clients and retain a leading position in the market.
Back in the day, everything was done by looking at locations on maps and keeping track of the concentration of exposures on index cards, but today with GIS software and digital mapping, you can fully understand certain types of exposures that exist that might not have been quantifiable decades ago.
Along with detailed risk models, software has helped to keep track of exposures, allowing for a more thorough underwriting style and pricing tailored to a particular client’s operations. The data analytics help to drill down into the risk exposures to a particular client at any point in time, as well as their aggregate exposures. However, while technology may enable greater understanding of a client’s exposure, the traditional pressures, such as adequate coverage and large losses, continue to be areas of concern for clients.
In addition, apps for phones and tablets are emerging as game-changers.
Right now TRU monitors weather events and will e-mail or call our clients’ project managers on any site that may be affected by an upcoming event. I envision an app that could alert clients to weather events with policy-specific provisions and information. It would also have the ability to communicate with clients about routine items, such as inspection recommendation compliance or when a site break-in is detected by a security vendor. All of this is done now with email and telephone.
Until recently, we relied on good security at construction sites to provide contractors and developers early warning about water leaks. Water leaks often result in major damages to a construction site, especially those that occur over the weekend when no one is around. TRU worked with engineers to develop an ultrasonic device that detects after-hours water flow in pipes and alerts a monitoring station in real-time. Response time to water damage resulting from a pipe or sprinkler leak for TRU’s customers should be greatly reduced as a result of this breakthrough.
Risk forecast
Weather has a big impact on construction sites.
The National Oceanic and Atmospheric Administration reported that during 2015, the average temperature across global land and ocean surfaces was 1.62 degrees Fahrenheit (0.90 Celsius) above the 20th century average. The absolute temperature was the highest among all years in the 1880-2015 record.
When we heard the predictions of a “killer” El Nino season coming in 2016, we acted immediately to determine how this might impact our clients.
TRU’s data and analytics team downloaded the NOAA-provided maps showing where El Nino was expected to have the biggest impact. TRU’s client construction sites were then overlaid on the NOAA provided maps. We were able to see which of our projects would be impacted most from the El Nino effect, and then shared this information with our clients. This gave our clients time to prepare well in advance of the severe weather.
New risk management and technological tools are already having a major impact on how the construction industry operates, such as the ultrasonic device that alerts contractors to a water leak. These types of advances will have a critical impact on mitigation of losses for complex construction and property risks in the future, including those from climate change and severe weather.
Mike Pilla is president of Austin, Texas-based construction risk insurer Technical Risk Underwriters, and has more than four decades of experience in underwriting complex construction and marine lines of business. Email him at mpilla@truins.com.
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