The construction industry is ripe with risk. As a general contractor it’s crucial to be clear about risk transfer among subcontractors and insurance carriers. The myCOI team can help. Learn more here!
In recent years, construction contracts have become much more sophisticated with their wording and the way they specify risk transfer. (We share more about this in a separate blog post). The risks that are covered by insurance and those that are risks the general contractor and its subcontractors have to assume as a risk of doing business can be unclear. As a general contractor who is diligently working to ensure the risk transfer to your subcontractors adequately answers the terms of your own contract, and the many nuances of this language can cause issues for those reviewing the contracts and the correlating certificates of insurance.
If you are nodding along to our assessment of this risk transfer situation, it turns out you are not alone! The recent report described below confirms that contractual risk transfer is consistently seen as one of the highest risk factors in the construction industry. Most compliance administrators don’t have the deep insurance background or insurance tracking solution in place that is required to catch mistakes, gaps in coverage, or fraudulent certificates from subcontractors, thereby adding more risk to their already heavy shoulders. We recognize that this is a growing problem, but we also have a solution!
Managing Risk and Risk Transfer In Construction
Of all industries, construction likely poses the greatest risks: subcontractors galore, health risks, major financial issues, and injuries, just to name a few. So it goes without saying that this industry—more than most—needs to be concerned with effectively managing and minimizing risk in any way that it can.
A recent Dodge SmartMarket report entitled, “Managing Risk in the Construction Industry” outlines several top post-recession risks for the construction industry. The report’s graph below summarizes its findings and indicates that three of the top four concerns for general contractors are related to contractual risk transfer and compliance.
Not only does the contractual risk issue play a role in creating many of these high risk factors, it also causes concern in many different areas of a business. The report goes on to explain that strategy and risk management is not the only department with concerns about contractual risk transfer. Contractual risks are viewed as a high risk factor from the financial perspective by 22 percent of general contractors and 25 percent of trade contractors.
Of course, that means that compliance-related issues are bound to be a big part of that fear. If general contractors don’t have a system in place to ensure that the subcontractors’ insurance corresponds with the strict (and ever-changing) requirements, then there is reason to fear. Compliance-related issues, such as improper endorsements, no listed additional insured, and lack of proper waivers, can result in significant financial losses for an organization that doesn’t have a buttoned up insurance tracking process in place to catch errors before the subcontractor begins working on construction projects.
A Focus on Improving Risk Transfer and Risk Management
As a response to the sophisticated language crisis, the Dodge article goes on to say that post-recession impacts combined with the industry’s more consistent risks have generated a complex new risk environment. Construction companies realize they need a better way to solve these issues and are responding with new approaches to risk management.
“Among participants in the AGC/FMI survey, 90 percent are deploying new tools and strategies, providing risk management-specific training, hiring personnel for new risk management positions, making more effective use of their relationships with brokers or combining these and other tactics; and almost 70 percent have a formalized risk management department and dedicated risk manager. These indicators suggest the industry is moving toward a more comprehensive approach to risk management at the enterprise level.”
Rely on Risk Transfer Insurance Tracking Services and Industry Experts
One such service that can be of assistance to construction organizations is insurance tracking, which helps to prevent compliance-related problems from slipping through the cracks. myCOI’s cloud-based software solution exists to assist in the critical tasks of managing certificates of insurance and confirming that coverage is in line with contractual requirements. Our unique program puts our team of insurance professionals in direct communication with vendors’ agents to alleviate the compliance headache for upper and lower tier contractors.
When it comes to confirming the insurance coverages outlined in those increasingly sophisticated contracts, myCOI has an answer that is built on a foundation of insurance knowledge.