A residential construction slowdown, persistent labor shortages, and newer building methods are all converging on the same underlying problem for insurers, according to Derek Reedie (pictured), head of engineering and construction at HDI Global Canada: contractors are operating under more pressure and more unfamiliar conditions than underwriting models were originally built to anticipate.
Reedie said the residential slowdown, reflected in lower housing starts tracked by the Canada Mortgage and Housing Corporation, is forcing contractors to make a difficult decision about how to keep work flowing.
"When you start to see that backlog decrease, contractors start to look for different opportunities," Reedie said. "Do they pivot? Do they start to consider other opportunities? Are there even other opportunities out there? That's the question that they need to address."
That pivot, when it happens, creates a distinct insurance exposure of its own, Reedie said, since a contractor moving into unfamiliar work may not carry the qualifications or experience the new project actually requires.
"If you have contractors that are going into work that they haven't done before, you can face increased risks," Reedie said. "As an underwriter, you need to make sure that the contractors, what they're doing, they're qualified to do that sort of work. Otherwise, you're just picking up exposures that perhaps you're not really anticipating picking up."
A contractor unable to pivot at all carries a different kind of risk, Reedie said. Declining revenue puts real financial strain on a business, and that strain can eventually surface in cut corners, weaker site safety, or lower-quality work, all of which feed directly back into the insurance risk.
A shrinking, aging workforce compounds the same underlying pressure, Reedie said, particularly as experienced tradespeople retire without passing their knowledge on to newer workers.
"It's an aging workforce in a number of industries," Reedie said. "When you lose that expertise, if that knowledge hasn't been transferred on into the up-and-coming, the next generation of talent, that just represents a threat to the business."
Since labor experience is harder to quantify than something like housing starts data, Reedie said underwriters have to rely on a less formal but still essential tool: direct relationships with the people actually running the work.
"The best thing I can say is getting to know your customer," Reedie said. "Any opportunity we have to meet with our customers, to meet with our brokers, meet with our insureds, we welcome it. That's when you really start to understand their business and how they are responding to these challenges that everybody's facing."
Newer construction methods are adding a further layer of complexity, Reedie said, particularly where modular construction concentrates production in a single facility rather than spreading it across multiple suppliers.
"If you now have modular coming out of one assembly point that's going out to multiple different projects, you have a bottleneck there," Reedie said. "You have to start not just underwriting what the project is, but you need to look further down the supply chain to identify what exposures are presented by that factory."
Emerging materials like mass timber raise a similar concern, Reedie said, since the industry still has relatively few suppliers and the material itself requires careful handling to perform as intended.
He said it's important to know who the manufacturer and supplier actually are, since that information helps confirm the material is being built properly, to the right specifications, and protected before it ever reaches the site. Moisture and water management throughout that process, he added, is a key factor in whether a mass timber project ultimately succeeds.
Underlying all of these pressures, Reedie said, is a simple reality of the industry: a project's risk profile can shift dramatically over the years it takes to complete, often for reasons entirely outside a contractor's control.
"The longer a project goes, the more time you have exposed," Reedie said. "There's uncertainty in everything, and things can happen for the project that's often a lot outside the control of the contractor."
Managing that uncertainty, in his view, comes back to the same relationship-driven approach that runs through every other challenge contractors and insurers are facing right now.
"It does come down to knowing how the contractor is managing the risks day to day, how they understand how the project is progressing, how they're measuring the performance," Reedie said, "and as much as possible, can they identify any early issues before they become something that impacts the site?"
