SAN DIEGO – Construction contractors and their insurers must adapt to the realities of the “new normal” that has resulted from the 2007-09 Great Recession, Craig Fundum, Omaha, Neb.-based president of commercial markets at Zurich North America, said Monday.

Since the end of the recession, the construction industry has been beleaguered by increased subcontractor defaults, more frequent and severe workers compensation and disability claims, and generally less favorable risk-transfer negotiating conditions for contractors, Mr. Fundum said during a keynote speech at the International Risk Management Institute Inc.'s 33rd Annual Construction Risk Conference in San Diego.

Simultaneously, persistent low investment returns have forced insurers to assume more conservative underwriting standards, necessitating a much deeper understanding of their clients' risk profile.

“As insurers, today we're feeling the stress of underwriting to a profit, where in the past we've relied so heavily on our investments,” Mr. Fundum said. “We have to get better at what we're in the business of doing, which is insuring risk, but that doesn't necessarily have to translate to higher pricing.”

Going forward, Mr. Fundum said, insurance pricing for the construction industry will be built around “key risk insights” derived from insurers' incorporation of a multitude of data sources in the service of predictive analytics and risk modeling.

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“This is really about helping the customer win, and not just about us trying to make more money on the insurance side of the house,” Mr. Fundum said. “Certainly, we want to make our share of the profit, but this is really about helping the clients understand the risks they face in a deeper way and helping them become a better risk for us to take.”

Successful integration of those standards and processes will be especially critical for insurers with significant books of construction business in the small- and midsize markets, Mr. Fundum said.

“At the upper end of the construction industry, we know more about that risk because the risk manager understands the exposures that their company faces,” Mr. Fundum said. “But for the vast majority of the construction industry, we really don't have that depth of knowledge, nor can we as insurers spend that amount of time to understand the risk in as deep a way as we believe we should.“

For their part, Mr. Fundum said he's been encouraged by contractors' increasing integration of new technologies and project delivery arrangements designed to mitigate many of the most pervasive risks in the new construction marketplace.

“In the new world of construction, there's a lot of conversation about building information modeling. It's a new way of approaching design and engineering documentation in the building process,” Mr. Fundum said. “It uses 3D technology, and it simulates the lifecycle of a building, and we think it can increase productivity and save time in the design of the project.”

Mr. Fundum also noted that contractors' increasing use of integrated project delivery arrangements, which he said can reduce the risk of project defect claims.

“The angle there is to assemble everyone involved in the project in the beginning, or as early as possible, and draw from their collective expertise before the shovels ever even hit the ground,” Mr. Fundum said. “That way, you have all parties sharing in the risks and the rewards, and you can build those into the contracts.”

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