Risk

Why You Should Re-Evaluate Your Risk-Management Approach Right Now

Certain recent industry trends are affecting the types of claims construction executives encounter.
By Greg Perruzzi
November 10, 2023
Topics
Risk

The construction industry is experiencing a shift in the types of claims it encounters and the availability of suitable insurance coverage in the marketplace. Litigation trends, building and labor cost escalation, and supply-chain disruption have heightened the complexity of claims risk in the construction industry. As a result, high-value claims are driving up the cost of insuring construction projects and creating new risk-management challenges for contractors.

Now more than ever, construction businesses can benefit from re-evaluating their approach to risk management as well as their relationship with partners in claims and risk management to help manage the claims process from intake to litigation.

Owners can navigate industry challenges more effectively by identifying gaps in their current solutions and outlining key steps to increase success during every phase of the construction project.

The Problem with the Traditional Third-Party Administrator Approach

Traditionally, TPA support for the construction market has been based on a two-pronged approach focusing solely on loss mitigation and resolution. Unfortunately, this model limits the ability to handle claims efficiently or to create tailored solutions for construction businesses and their employees.

Contractors and construction businesses are required to engage several vendors to properly cover the project lifecycle, from pre-construction to project closeout. Having disparate partners can minimize an organization's oversight, increase the complexity of claims handling and lead to inefficiencies and mistakes. Essentially, too many moving parts decrease control over the claims and risk-management process.

Additionally, this narrowed approach of most TPAs often overlooks the opportunity to positively impact the total cost of risk to construction businesses by providing tailored loss-prevention solutions. When combined with additional vendor partnerships, this can lead to cost leakage and time inefficiencies.

Below is a summary of the four key areas where risk manifests together with the resources construction businesses need at their disposal in order to minimize exposure, positively impact TCOR and protect the bottom line.

Loss Prevention: Minimizing Risk

From compliance challenges to ensuring onsite safety, the construction industry is experiencing a staffing and skill-set deficiency in the safety and loss-prevention space.

Construction risk demands focused, well-versed industry professionals who understand the exposure and assumptions within contracts and the nuances of the insurance policies that cover them. Qualified field services, onsite safety managers and experienced technical-support personnel should be engaged to provide a wide range of consulting, engineering, risk-assessment and quantification, construction-management, regulatory-compliance and risk-transfer assistance.

Construction businesses can also benefit from partnering with firms that offer risk-management tools that leverage data-driven insights to build robust programs in loss control and risk mitigation. These programs should focus on safety awareness and provide timely information and updates to decisionmakers to help reduce potential claims.

Partnership with industry-leading experts in construction claims and loss control provides the opportunity to integrate solutions for preventing operational loss and can ultimately reduce the TCOR.

Loss Mitigation: Controlling Claim Severity

Mitigating claim severity is crucial for controlling costs in the event of an incident during a project. Construction businesses should look to secure partnerships with claims professionals who receive industry-specific training and are governed by a set of proven best practices. Furthermore, claims and risk-management partners who offer industry-leading technology within their claims-handling services can provide insights into the driving causes of claims and ensure that construction businesses are equipped to address them. When this is the case, every claim and claimant receives the necessary expertise and a seamless experience that prioritizes collaboration and efficiency in claims handling.

The right partner will advocate for the inclusion of the business at the earliest opportunity in the lifecycle of a claim, enabling leaders to effectively address an event, mitigate loss impact and support the completion of projects on time and within budget.

Loss Remediation: Responding to Crisis

A comprehensive claims and risk partner has the ability to respond to a crisis as soon as it occurs. Having a rapid "boots on the ground" response reduces the chance of escalating conditions on the jobsite, thereby lessening the severity and cost of any claims. A well-rounded partner can deploy environmental, health and safety specialists, as well as onsite safety professionals to client offices and jobsites. This will help to keep sites safe and provide ongoing support through the lifecycle of a project.

Quick investigative capabilities enable projects to continue as soon as it is safely possible, protecting employees, the site, the business and the overall project.

Loss Resolution: Delivering Successful Outcomes

When it is time to resolve a claim, construction businesses require a team that can deliver swift issue resolution to claims with the goal of safeguarding business reputation, reducing project slowdown and mitigating potential future risk.

Claims of varying complexity across the construction spectrum encompass a wide range of nuances. As such, partnering with a firm that has access to experts in construction litigation can help construction businesses expedite every level of complex claims through technical specialists, expert-witness analysis, litigation preparation and expert testimony.

Construction business owners are faced with a multitude of challenges in today’s market, from litigation trends to supply-chain disruptions that can impact the company’s profitability. However, by re-evaluating its risk-management approach and claims and risk partnerships, owners will better understand the gaps in their current programs. This will allow them to minimize risk, control claim severity, respond to a crisis and resolve claims swiftly and seamlessly. This approach can positively impact the total cost of risk and, ultimately, the bottom line.

by Greg Perruzzi
Greg Perruzzi is senior vice president—construction vertical leader with Gallagher Bassett, the global provider of risk and claims management services. For more than 20 years, Greg has been providing creative solutions to some of the largest construction management and real-estate development companies. He can be reached at greg_perruzzi@gbtpa.com.

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