IBA: Which construction trends are having the biggest impact on insurance today?
Christine Chipurnoi: There are a couple things right now in the construction field that are both problematic and things we need to look at. The biggest issue is the lack of qualified labor, and from an insurance perspective, that’s really important because if you don’t have skilled labor on the job, you can have more accidents. In New York we have labor laws, which makes owners strictly liable for any and all falls from a height, grave injuries or deaths on a job site. These claims are non-defendable because it’s strict liability. There’s no comparative negligence between the employer of that employee – who's likely a subcontractor – and the owner, so if somebody falls and breaks their leg, owners will pay somewhere in the seven-figure range, which impacts our market.
The second issue is the major changes going on in technology. Modular construction is changing how we build, what we build and how fast. Structures are built somewhere else, and then we bring them in, stage them, pick them up with cranes and stack them together. What that does is it brings projects to completion up to a year ahead of schedule. It’s a different way to build, and as such, a different way to structure policies, and the industry is still figuring out how it’s going to charge for those exposures.
Builders are also using drones, laser-guided equipment, robotics and wearable technologies that all have an impact on safety, so we have to make sure our policies are crafted to take all of that into consideration.
IBA: What are the risks and exposures you most commonly see as being underinsured in the construction space?
CC: I think the area where most clients are either misinformed or underinsured is effective risk transfer. A lot of clients will come to us and say, ‘I own a building, and there’s a triple-net lease with XYZ company, so I don’t need insurance.’ Then when we look at the lease, it may or may not say that. Sometimes it says the landlord is responsible for the building systems and certain structural aspects. When people outsource stuff, they think they’re washing their hands of the liability, when in fact they are not.
The second big area is cyber. People don't realize all of the different facets cyber policies cover, and most real estate and construction companies will say they don't need cyber when it’s probably one of the most important products for them to protect their company. The thing I hear is, ‘We don't take credit cards.’ They believe that if they're not initiating transactions, then they don't need cyber coverage.
IBA: How are building trends affecting insurance coverage?
CC: The office market across the country is not in great shape because most of the product we have in the US is dated. Older buildings are not equipped to handle new technologies, so we have seen big warehouses going up that have different kinds of exposure bases.
One we just worked on was a robotic warehouse that had machines picking up the merchandise people were buying and putting them into bins; the bins would hang from a conveyor system and be driven around the warehouse. When the insurance inspector came to see the warehouse, he said, ‘If your sprinklers go off, the bins will fill up with water, and the whole conveyor system will collapse.’ These are the things that no one thinks about that make us change how we do things. Now they are retrofitting that system to come up with a solution so we don’t end up with bad claims due to a sprinkler going off accidentally.
IBA: How have external factors such as natural disasters or government regulations impacted construction coverage?
CC: The intensity and frequency of natural catastrophes like wildfires, tornadoes, severe storms and flooding have really impacted the market coverage. Nowadays, it is getting harder to get coverage where you need it, and deductibles are higher. If you want to build a building on a floodplain, you're going to pay a lot of money for your insurance and have a much bigger deductible.
The problem is, that’s where everybody wants to be. They want to be in all these places that are high CAT and on the coastline. We have seen catastrophic losses come in through reinsurance companies, and now their rates are going up, and they're carving out areas that they no longer want to cover. So that makes it harder for us to buy the right insurance and enough insurance for our customers.