As the construction industry continues to boom amidst a tight labor market and increasing regulatory scrutiny, companies are facing a perfect storm of rising claims, costly verdicts and growing insurance premiums. Today’s risk environment demands a more proactive and strategic approach to safety and liability.
Construction companies today are feeling a lot of pressure in the general liability and vehicle liability marketplace. Social inflation — which refers to the cost of insurance claims rising faster than the general economic inflation rate — is causing premiums to soar. Key factors contributing to this social inflation are increased litigation, third-party litigation funding and inflated awards of $10 million or more to claimants.
In an industry like construction where injury is a matter of when, not if, and fatality rates remain high, these nuclear verdicts pose a growing threat. A U.S. Chamber of Commerce study on trucking-related litigation found that the average award for plaintiffs’ verdicts between June 2020 and April 2023 was upwards of $31 million. Even more alarming, in 2023, a Dallas-based real estate developer had to pay more than $860 million in damages to the family of a woman who was killed in a crane collapse.
With the possibility of an attractive settlement, workers and other injured parties are more likely to pursue general liability and vehicle liability claims, and attorneys are capitalizing on the moment. For example, according to a report initially published by ABC News, some insurance groups are claiming NYC construction site workers are faking injuries hoping to collect large settlements.
Today’s litigious environment, coupled with higher medical costs, rising vehicle repair costs and large punitive damage awards are driving up premiums, but there is even more at stake. Beyond the monetary implications, the limelight that comes with a big claim or nuclear verdict puts construction companies at risk for reputational damage which could stunt new business growth and recruitment. With a lot at stake, construction leaders need to rethink their risk mitigation strategies.
In this volatile landscape, construction companies need to shift their approach to risk from reactive to proactive. Here are six strategies that can help prevent claims and help companies be protected should claims arise.
When an incident does occur, it’s crucial that construction companies have a streamlined process for reporting in place to ensure consistent documentation, timely carrier notification and early opportunities for claim advocacy and resolution. Incident response protocols should involve robust accident investigations that include root cause analysis to dissect what happened and why. By centralizing incident reporting, companies can eliminate gaps in communication and ensure all claims are handled efficiently.
After a claim is resolved, it’s important to reflect on the “what, how, why” and any lessons learned during the claim advocacy process. This step can be instrumental in preventing future losses of the same nature. Trend analysis of prior claims is a valuable tool to uncover patterns and key insights. Claims history tells a story and looking back on previous cases can help construction companies determine targeted risk control strategies to prevent future losses and improve overall safety practices.
There are tools that help companies transfer risk away from their insurance program and balance sheet. Construction companies should review subcontractor contracts and incorporate additional insured, indemnity and hold harmless provisions as well as insurance requirements that clearly assign liability to the appropriate party. When losses occur, clean contractual language allows for more efficient recovery and minimizes disputes.
With insurance premiums rising, investing in loss control can help construction companies reduce claims and realize insurance premium savings. Specifically, technology tools for incident reporting, analytics and telematics are another layer of protection construction companies can use to enhance risk management.
There are a few tactics that can be implemented quickly and at scale:
All construction companies should have compliance plans for OSHA standards that include regular training and inspections to ensure adherence. With younger, less experienced workers being brought onto sites, safety training is especially important to reduce risks. Some key OSHA standards construction companies should focus on are fall protection (which was the most frequently cited OSHA standard in FY24), personal protective equipment and confined space protection. Working with an insurance broker who has safety expertise can help companies get a leg up on OSHA compliance.
When safety is embedded from the top down, incidents decrease and fewer claims help lower the overall cost of insurance. A culture of risk awareness needs to start at the top with executives and senior leaders who value and promote safety throughout the entire organization, getting buy in from managers, supervisors and workers. To do so, leaders must switch their success mindset from that of just how quickly and on-budget a project can be completed to include how safely it can be done. When safety is tied to success, the entire organization is more likely to get on board.
With the frequency and cost of claims rising, construction companies need to refocus their safety and risk mitigation efforts. Collaborating with dedicated claim management and risk control advisors is more essential than ever.
At Conner Strong and Buckelew, our Property & Casualty group is comprised of experts in both claim advocacy and risk control, providing a full range of services to ensure clients are covered before, during and after a claim. Our risk control team specializes in designing and implementing complete safety and risk control programs — and works hand in hand with our claim advocacy team to provide guidance on proactive measures that can help reduce your total cost of risk and maximize your recovery should a claim arise.
When choosing claim management and risk control advisors it’s important work with a company that has deep expertise and resources in key areas, including:
If you’re exploring ways to improve site safety and manage claims more effectively, we’d be glad to connect and share insights. Contact a member of our team today.
James Hanrahan
Partner, Senior Business Development Executive
Michelle Leighton
Partner, National Claim Advocacy & Consulting Leader
Andrew Still
Vice President, Business Development Executive
