Posted on 08 May 13 by Annie George
After a 10-year cycle of low rates, the construction market is on the rebound, said Jack Probolus, manager of construction wraps with Liberty Mutual Group. Probolus spoke about how the rebound in construction is impacting the workers' compensation line with Best's News Service at the recent Risk and Insurance Management Society's annual conference in Los Angeles.
Q: Can you tell us about the overall market for construction?
A: It pretty much is consistent with what you're experiencing in the overall commercial insurance market. There's been a hardening after a repeated 10-year soft cycle. Finally, reality has come to play and we're seeing increases as well, primarily in the workers' compensation and also in general liability, and auto liability, and related property lines generally increase throughout commercial insurance. But in construction we're seeing more and more of increases coming into play, just because of the nature of the economy.
Contractors that have survived the disastrous period that we had from 2009, those that survived are doing well. They're a lot more confident in their backlog and seeing some expansion in their business sectors, which is a good thing for everybody.
Bad news is we're seeing, from their perspective, an increase in rates. Workers' compensation has been a problem for the entire industry. Combined ratio in the high teens just can't be supported by any means. You can't take $1 worth of premium and spend $1.20 in losses. Interest rates are at historical lows. There's no investment return on the premiums booked, and medical inflation is far outstripping inflation overall.
We're caught in a big bind. Everyone's caught in the bind of rate increases. We're seeing that throughout. It's a major impact on most of the contractors. Our competitors are seeing things the same way we are, so we're not unique. It pushes a lot more emphasis on safety to control losses, make sure that they don't happen. More importantly, once they do occur I'm sure you've heard this from many people here at the conference medical case management and early intervention to control claims produce positive results, and get injured workers back in the workforce again.
It's using analytics, predictive modeling, and other techniques to find out when a claim, which is normally straightforward, all of the sudden takes a blip in six to eight to 10 months later, and a similar claim just stays online for various reasons, partially because we're seeing, in construction as well as the workforce, age coming into play. A highway system built in the '50s is starting to show its age; more than starting to show it.
That stimulus is part of the response to that two-fold, one to repair the infrastructure, and also to boost the economy. We're seeing a lot more traffic on the roads, heavier loads on the trucks and in transportation, as well as just the overall increase in the number of cars on the roads and highways, bridges and tunnels. There's a major emphasis there to improve that.
Age is an important factor in the workforce. We're seeing construction workers getting older. They're doing more tasks. The work is still pretty manual. There's not a lot of automation taking place other than in drawings and design floor for projects. We're seeing a lot more potential injuries, long-lasting injury, and with medical care has been improving. Consequently there's more testing, more intervention, more dollars that are being spent in those cases.
It's almost a perfect storm as far as where we see workers' compensation, especially in the construction industry. There are some jurisdictions also that have a pretty aggressive plaintiff bar that are forcing claims and getting pretty high awards that are having an impact overall, just not on the medical side but on the expense side of the equation as well.
Q: What are the emerging approaches to construction, and what are the risk implications?
A: There's more and more partnering taking place in construction. We're seeing larger projects. Contractors are teaming up with others to compete for these projects, especially for infrastructure work. There's more and more of an emphasis on safety. There's recognition of the fact that this confronts many of the contractors. They're sharing the risk and they want to do all they can to control the risk as much as possible.
Education is a good thing. There's the ability to share information, to improve techniques, the best practices, and some of the changes in construction techniques as well. Before, a six-foot fall was a major issue. Now it's mandatory protection, cocooning of buildings, for instance, to keep them, in high rises specifically. Materials that are on open floors from blowing out and falling down and potentially injuring the general public beside them.
There's, again, more sophisticated modeling, as far as building techniques. But then you have elements such as Chinese drywall and some other imported materials coming in, and the need for higher quality assurance and quality control to make sure that the materials that are coming into play are fit and meeting the standards that have been established to protect the owners, the general public, and the workers themselves.
We've seen an awful lot in the cranes. Fortunately not recently, but there was a high degree of activity in crane failures, and obviously some potential catastrophic losses there as well.
Q: What other issues are keeping you and your colleagues up at night?
A: It's more the same as far as contractual liability and the issues that face contractors. There's more and more legislation trying to push down liability on others and the resistance from...It's generally been the larger contractors have the ability to push it down. There's more of an emphasis on contract wording to make sure that there's a true sharing of risk.
There's also most in an area of integrated project delivery whereby a whole team gets involved in a project where it begins with the owner. It includes the architect and the general contractor as well as the major subs.
They do a careful amount of planning. There's a lot going on in this state, particularly in the medical field, to get all parties together at the outset and to collaborate to make sure that there are no clashes ...so that you're not on a worksite scratching your head and saying, "How did that happen?" Everybody's gone through the process in advance and it makes for a safer, more effective means of construction.
We're seeing also on larger projects more offsite construction and sub-assembly, where you're not in a congested worksite. I'm sure you've seen them, where you've got welders, you've got plumbers, you've got carpentry and steel directors working in a very tight space, where there's the ability to do some sub-assembly and basically truck them over there and piece them together onsite.
It's a much safer environment for all parties and results in a smoother workflow with fewer delays and less cost over runs and attendant problems that you could run into with non-sub-assembly procedures.