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INSURANCE AND WORKERS COMPENSATION


Increasing Construction Demand Benefits the Insurance Market


By Michelle Dunsing, CliftonLarsonAllen


many already knew – we’re in a strong seller’s market. Simply put, more people want to buy homes and other properties than are available. Tis has led to a construction


A


boom, as builders try to develop an inventory of new properties or redevelop existing properties to meet the demand. Fortunately, in many areas, developers have been reasonably responsible about building, learning an important lesson from the recent past. No one wants an over-abundance of properties followed by a crash. Every major shift in the real


estate market drives other changes. Tis particular construction boom is affecting the insurance industry.


More builders and homeowners’ policies


More building and renovation


projects mean increased demand for insurance policies for builders and homeowners. Existing companies may also seek new polices to ensure they are adequately covered as they grow and take on more projects.


Greater need for labor force and workers compensation insurance


On the construction side, more


projects lead to an increase in hiring. A recent report from AGC of America mentions that 73 percent of construction firms plan to expand their workforces this year. Tese employees will need to be covered by their hiring company for workplace incidents and should also represent opportunities for life, health and other insurance products.


14 March/April 2018


nyone searching for a home or commercial property in the past year has found out what


According to Woodruff Sawyer’s


“September 2017 Marketplace Overview,” the current workers’ compensation insurance market is competitive with base rates falling, despite an overall increase in losses and claims. Tis is due to a strong employment trend and the industry’s surplus capital position. Tere are alternative risk financing options to help mitigate the cost of insurance, including self-insurance, captive polices, and loss-sensitive programs. Tese alternative polices are generally recommended for companies with 50 or more employees.


Cyber threats and protection Te last building boom (in the late


90s and early 2000s) occurred in a different technological time. Te recent advances in technology have been unprecedented. While the changes create new risks (such as cyberattacks) for the insurance industry, insurance companies that are ready to embrace change will position themselves well for future opportunities. Construction firms are embracing


new technologies as well as big data, which can change the way projects are analyzed by insurers. Tis also means that construction firms are becoming candidates for insurance because their data are now a valuable target. A recent Denver Post article mentions that 60 percent of small companies that suffer a cyberattack are out of business within six months. Tese crimes cost the global economy billions of dollars per year, and because standard general liability policies do not cover cyber risk, cyber liability policies can protect against cyber-related events. Stand-alone policies have two


main components: party coverage and third-party coverage. Party coverage mitigates a company’s financial losses


while third-party coverage provides coverage for legal defense and settlements for claims resulting from security incidents. Endorsements are available, such as extortion and ransomware, business interruption and data restoration, and network security and privacy liability. Cyber policies are currently the


fastest growing insurance product in the industry, but many construction firms that are not yet covered have left themselves vulnerable to attack and financial ruin.


The future looks bright Due to this building boom, the


future looks bright for insurance companies. When insurers see more homes or buildings going up in an area, they can feel confident about prospects for the city or region. Growth feeds growth. Te insurance industry is always


changing, and it is sensitive to many factors in the market. Top-tier insurers must also be sensitive to change and collaborate with their customers to help manage risk. On the construction side of the building boom, firms should consult with their insurance represen- tatives to be certain they are adequately covered when incidents occur. 


Michelle Dunsing, CPA – Signing Director, CliftonLarsonAllen (CLA), has over two decades of experience in both public accounting and industry. She can be reached at (415) 599-2022 or Michelle. Dunsing@CLAconnect.com.


*Note: Te information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, or tax advice or opinion provided by Clifton- LarsonAllen LLP to the reader.


California Constructor


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