Construction companies need to focus on risk management to be profitable in 2024: Survey

The Hub International 2024 Outlook Survey says risk management will be vital for construction companies to be successful in 2024.

Released Dec. 6, four key topics were explored in the survey: profitability, vitality, resiliency and emerging technology.

“It focuses on what’s happening in the economy, employees…all these changes and supply chain issues, interest rates that really could hammer profits,” said Craig Tappel, chief sales officer with HUB International’s North American Construction Specialty Practice. “It’s really the long-term issue of maintaining profitability for our customers. That’s probably one of their biggest challenges.”

Three in five Canadian construction respondents to the executive survey said economic issues and unpredictability are challenges to profitability in 2024, states the outlook.

Firms will need to focus on proper valuations for projects and equipment if they want to remain profitable. They should also ensure insurance coverage is adequate.

In terms of vitality, the industry will need to hire nearly 300,000 new workers over the next year to meet demand, said Kevan Thompson, vice-president, construction, HUB International.

“That’s not going to happen, so there is going to be a mass shortage,” he explained. “I think people are going to get a little desperate for people. When things get a little desperate safety measures can get unfortunately neglected a little bit or bigger risks can rise out of it.”

The competition for skilled labour is also forcing construction companies to offer alternative insurance and personalized benefits options to employees. Although it can improve recruitment and retention, only about a third of respondents offered these benefits.

When it comes to resiliency — what it takes to recruit, maintain, train, onboard and keep workers safe — Tappel said construction companies can reduce the risk of costly construction claims with strong risk management.

“That’s from trying to prepare yourself for what could be the next pandemic or the next interruption to a construction project or what can we do to recover from the next extreme weather delays, fire issues, storms,” he noted.

“What does it take to recover from disruptions, whether they are insurance claims or other types of disruptions? What will it take for our clients to make it through that?”

Most construction insurance lines are seeing downward rate pressure and overall rates are holding steady with average increases of one to five per cent.

“However, rising inflation will result in valuation adjustments and gross receipt changes that could drive up premium rates in the future,” the survey states. “Construction firms involved in large value projects may see elevated rates for course of construction insurance because of the number of insurers required to secure adequate coverage.”

The survey found only 32 per cent of Canadian construction firms are currently taking action to foster a culture of risk awareness, preparedness and mitigation.

Technology such as data analytics, artificial intelligence, the internet of things and telematics can help increase safety and improve productivity and efficiency, said Tappel.

“That could be becoming a greener organization, thinking about different tools or types of concrete, choosing mass timber,” Tappel explained.

“What are the things that keep employees safe: any type of fall protection, things that track automobiles, telematics. What are the things that we can do to speed up the adoption of technology within the construction space? I think that’s a real key to some of our customers making it and surviving.”

The construction sector output is expected to decline by the end of 2023, with residential construction dropping the most significantly.

“We are really concerned about the combination of the increased cost of labour, materials and the cost of money, interest rates, all those things together. They’re not only delaying the start of some projects, they’re maybe derailing some projects,” Thompson said.

“Some of these are just getting pushed back into 2024 and saying, ‘maybe we can make it work later.’ There’s been a lot of delays out there and that’s with public and private work.”

Tappel said when a project is delayed it’s a challenge to try to predict what the insurance costs will be.

“Some of those quotes that we used to be able to hold together for long periods of time until the project could actually start, maybe now we can hold it together for 30 days,” he said. “We used to be able to hold it together for a year or more and still be able to provide a meaningful, accurate prediction of cost so the contractor and the owner could have certainty.”

The U.S. and �°��ϲʿ��2023 are facing similar challenges.

“One additional challenge that’s happening on both sides of the border are projects taking longer than expected or really exceeding budget after the project starts. They have to sometimes go redo the insurance either to make it for a longer period of time or to make it for a substantially higher amount of money,” Tappel said.

“When you go do that sometimes you get the current market rates instead of the rates that you had when the project began or when you initially bid it out and that’s causing quite a bit of headaches. It’s causing some projects not to be profitable that would have been otherwise.”

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