I always like to get to the “real” story and backdrop of things- which of course can be difficult. In AEC, like in any other industry, there are many groups and companies which naturally are promoting a specific narrative and opinion.

But I often look to the insurance industry as one that actually is publishing “real” data and trends. They are relevant because they are putting their money where their mouth is, as the old saying goes. They are betting on it; if they are wrong- they are paying out enormous amounts of money. In doing so they are hurting their own corporate fiscal picture and business viability.

On that note there was an interesting article in a recent ENR magazine edition, “Increased Claim Frequency, Severity Spark Coverage Adjustments”. A few of its main points include:

The top 3 sources of conflict were: changes in scope and underdeveloped designs, incorrect design, and workmanship deficiencies The number and cost of (project/construction) claims continue to increase, in some cases by double digits Pressure on contractors to accelerate progress contributes to workmanship deficiencies GL insurance premiums have increased significantly over the past few years, and in 2024 most will see an additional increase of 5%- 15%.

NYC contractors will continue to see very high insurance premiums, as will projects in Florida and the Carolinas.

Good times! (??)

Anyone who follows the construction industry closely and/or who is a principal at a firm probably already knows all of this. But it is interesting to see it spelled out so clearly.

Over the past 15-20 years the expected speed of most construction projects has increased so much so that essentially projects now need to be managed and executed at a near-perfect level with no crew size limitations. As a project manager for many years, I have seen this fact play out again and again- when you speed up the onsite tasks, you increase likelihood of mistakes.

For a contracting firm, it is not just the cost of their insurance that is increasing- but it is also the time and effort and paperwork needed just to comply with newer underwriting protocols. This is an added overhead cost of doing business that normally gets forgotten about.

This one ENR article did not even delve into the added issues (from an insurance and liability perspective) of the different and newer types of project delivery methods. Design-build and Public-Private-Partnerships (PPP) are often touted as a “better” means of project delivery, but they can have their own limitations. Insuring these projects are often more complex, and can come with some increased overall insurance/premium costs.

The bottom line is that with increased costs of AEC general liability insurance costs (as well as Builders Risk insurance where applicable), the costs of all construction projects will and must increase to offset. No company is going to willingly have these added costs come out of their profits.

So overall project costs have yet another reason to rise, along with general inflation, supply chain concerns and lead times, labor shortages, more stringent Codes, and the like.

Written by:
Ken Lambert, CSI, CSL
Northeast Region CSI- President
Cocoon- Director of Structures