Wrap-Up Construction Insurance in a COVID-19 Environment, Part Two
Last week, we presented the first half of Chris Smith and Corida Murphy’s article on wrap-up construction in a COVID-19 environment. This week, we present the second half, where they look at what size project makes sense for a wrap-up, how technology can minimize losses and how COVID-19 will affect the different lines of coverage.
What Size Project Makes Sense for a Wrap-up?
While it is true that the larger the project, the easier it is financially, it really depends. Wrap-up programs have multiple benefits, including expanded coverage, so analyzing the risk in the entire portfolio is key to answering this question. It is perfectly possible to fit in projects as small as $1 million, just as long as the rest of the portfolio adds enough volume. Every owner should be taking a fresh look at their pipeline and thinking about putting in smaller projects. In the past, owners or GCs may not have considered doing that. Maybe they don’t have enough large projects, but they may have a lot of smaller ones that could be put into a rolling wrap-up program rather than a single site. Our suggestion is to work with your broker and see how you can seize opportunities on all of the projects in your pipeline.
How Can Technology Help Minimize Losses on a Wrap-up?
As we mentioned earlier, wrap-ups are generally a better fit for larger projects. Larger projects require more oversight and generally have more funds devoted to employee safety and well-being. Over the last few years, there have been significant investments in technology designed to enhance safety and employee engagement. Technologies like wearables that track a worker’s movement on a job site and enhanced cameras to oversee safety have been implemented and are showing positive results.
During the coronavirus pandemic, we have even seen apps that test people’s temperatures and screen workers before coming on-site. If they have a temperature, they don’t come to work or are sent home. These technological enhancements are providing owners and GCs with more actionable data, allowing them to better control safety on a job and reduce the number of job site accidents.
The timing of these tools couldn’t be better. The future points to more liability and more risk, so more data and information will be needed. Specifically for COVID-19, if protocols are not followed or there is not a well-structured approach in how to return workers to their jobs, there can be potential liability for exposing someone unnecessarily to the virus. If a worker becomes sick because another worker from another company refused to wear a mask, could there be a lawsuit? Only time will tell.
Do You Think That Insurance Companies Would Consider Doing a Wrap-up Program Right Now?
That depends on the risk. There is enough data out there showing what it takes to make a project successful and underwriters are looking for “best practice” procedures. If a company is able to present a risk that is consistent, and the underwriter can see where a company is going and how they’re managing themselves to incorporate industry best practices, then the underwriter should be willing to price the risk. If the risk is a new company and has never done a wrap-up before, then the underwriter will be more hesitant and conservative. In these instances it is very important that the company tell their story and show the underwriter that they understand the “best practice” controls and how they will be implemented on the job.
How Do You Think COVID-19 Will Affect the Different Lines of Coverage in a Wrap-up?
If COVID-19 starts getting covered for workers’ compensation, it could have a huge impact. The jury’s still out on this. The industry was already entering a hard market before COVID-19 hit. Now the poor economy will only exacerbate the issue. A lot of the rates insurance companies thought they were going to be getting, from a revenue perspective, may be cut even further. All this points to further uncertainty for coverage and rates.
How Does COVID-19 Compare to the 2008 Financial Crisis Relative to Wrap-ups?
The economic impact is exponentially greater here. In 2008, mortgage backed securities and banks shut down. The collapse of the credit markets devastated building projects. The real estate market essentially collapsed and overall construction dropped significantly. Certain sectors will be hard hit. We are already seeing the commercial office building sector come to a near standstill. Hotels, strip malls and restaurants could all see major changes.
We might also see this as a grand pause. Projects that were going to take place next year may be delayed until a vaccine is developed and owners and developers can take another fresh look at their plans and see if there are better ways to invest their time and money.
How Do We Apply Past Learnings to Present Day So That We Stay on Track? Is There Anything You Experienced From the 2008 Financial Crisis That Could be Applied Today?
From a building standpoint, some large general contractors had diverse portfolios that helped them weather the storm. They were better equipped to move from residential construction into government building and municipal contracts. We may see something similar happen this time where the government helps stimulate the economy with heavy infrastructure and civil project spending. If you are a contractor heavily invested in a particular industry, like commercial office buildings, you will need to think strategically about transitioning to compete in other areas.
How Will the Construction Industry Recover? Will a Wrap-up Be the Answer?
In light of all the challenges that everybody’s going to be facing and all the changes, wrap-ups will remain a certainty. There are no absolutes in anything we do, but solutions that provide an advanced level of certainty regarding risk, cost and protection are always worth exploring.
Chris Smith is a senior vice president of construction for NFP. Cordia Murphy, CRIS, is a manager of wrap-up administrative services for NFP.