Overcome Top Construction Risk Challenges in 2022

Managing the downsides of these three factors will help contractors overcome the year’s top business barriers.
By Craig Tappel
January 13, 2022

Nobody was prepared for the fallout from the global pandemic, including the construction industry. But as 2022 and the pandemic’s third year arrives, contagion from new COVID-19 strains continues unabated and so has the fallout.

The pressure has only intensified to get ahead of barriers COVID-19 has created. The challenge facing the industry is to understand and manage the risks blocking its way.

Critical among them, of course, are shortages of everything, starting with materials and labor. By themselves, materials and labor shortages have led to costly delays in project completions, hurting revenues and the bottom line.

But the environment also has had positive implications for other deepening trends that construction firms should be prepared to leverage. Alternative materials have continued to evolve and—even without supply chain issues—will be more viable in 2022. And technology’s influence is unstoppable. It’s managing the downsides that may be problematic.

There’s a lot at stake in managing the challenges ahead for a booming North American construction market, especially given the added boost of the trillion-dollar U.S. infrastructure bill. Here are the prevailing trends shaping up for 2022.

1. Supply chain woes continue, but alternative materials may help

Between the pandemic-driven shutdowns and impact of severe weather conditions in 2021, builders have been seriously squeezed by a shortage of materials needed to take on a surplus of projects. They should expect more of the same in 2022.

It’s worth noting that alternative materials will get more traction, though that’s more a function of continuing quality improvement than a response to supply chain bottlenecks. For example, mass timber’s strength and fire resistance make it viable for certain uses. Plus, it’s manufactured domestically, giving it long-term supply side advantages. And the disadvantages of “bendable” concrete can be balanced against a smaller carbon footprint and greater durability.

Still, downside risks must be weighed. Manufactured wood, for example, is not as susceptible as regular lumber to fire and water damage, but it’s not risk-free. Insurance implications, particularly property, general and product liability, must be checked before it’s used.

Conditions mean that managing the business won’t get easier in 2022. Cash flow cycles will continue to be interrupted, affecting costs, timing and project budgets. And delays due to materials shortages are leaving firms under further pressure to extend expiring builders’ risk policies.

It’s going to take resilience to get through this period. To mitigate the risks, supplier relationships—especially with local and regional resources—must be bolstered through regular engagement and use of backups. If possible, materials reserves should be built. And reliance on foreign-made supplies and just-in-time sourcing should be reconsidered.

2. The labor shortage remains a long-term pain

Over the long term, the perennial shortage of construction workers may cause more pain than shortages of materials. The greying of the workforce—with an average age of 43—makes the question more urgent. Where will the 1 million workers needed to meet the construction boom over the next two years be found?

Improved voluntary benefits can pose a near-term recruitment advantage. Vocational skills training and retraining is helpful, too, particularly in addressing the worrisome issue of retention as turnover has reached 21.4%. Members of Associated Builders and Contractors invested $1.3 billion in 2020 alone to upskill workers.

Making construction more relevant to tech-savvy to younger generations is also key given the way technology increasingly influences the industry. The growing deployment of technology with drones, robotics and "Internet of Things" solutions requires bringing in millennials and Gen Z who are comfortable using technology. Some firms are responding with cross-training programs, where older workers with manual skills and tech-savvy apprentices trade their knowledge.

3. The profound and continuing impact of technology (and its risks)

Technology is having a transformative effect on every aspect of the construction business, a trend that will only continue to grow in 2022 and beyond.

It’s exciting to watch the wave. Drone use is skyrocketing and more contractors are using automated construction robots and self-driving vehicles. Smart project management tools make scheduling and budgeting more efficient. Robots and wearable sensors improve efficiency and safety.

Keeping up may pose a challenge to some given financial fallout from the pandemic. But participating in the trend is not optional when technology promises to improve the industry’s productivity by as much as 60% and deliver as much as $1.6 trillion annually in incremental global value.

Moreover, guarding against technology’s risks, which are increasingly serious as cyber attacks continue to grow and cost the industry. No one’s safe from breaches; in one study, 75% of firms in construction fields reported having cyber incidents in the previous 12 months.

If riding the tech wave is not an option, neither is cyber insurance as attacks are only gaining momentum. While premiums are likely to grow by 20% or more in 2022, such policies more than outweigh the devastating costs of emerging from an attack without protection.

by Craig Tappel

Craig Tappel is the Chief Sales Officer for global construction insurance brokerage HUB International’s Construction Practice. His experience in construction began when he joined his father working in the family company after college. For 10 years, they worked together as independent risk management consultants serving energy, industrial and construction contractors. This led him to a role as the Chief Marketing Officer for HUB Gulf South. Craig has also held leadership roles at other national brokers and served as a General Manager for an MGA providing contractor package and commercial auto fleet coverage. He holds a number of professional designations including CPCU, CLU, AMIM, ARe, CPA, and CGMA.

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