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Doug Cauti, senior vice president and chief underwriting officer for construction and national insurance at Liberty Mutual Insurance Co. in Boston, says the construction industry faces challenges that include finding skilled labor as well as qualified subcontractors. He discussed those and other issues with Business Insurance Senior Editor Gloria Gonzalez at the recent International Risk Management Institute Inc. annual construction risk conference. Edited excerpts follow.
Q: What do you see as the key issues from a risk management perspective for the construction sector?
A: I would suggest that finding skilled labor is going to be a tough issue going forward for a lot of contractors. Attracting talent to that industry is not easy, and the less skilled labor they have, the more money they have to spend on training and onboarding and lack of productivity. From a loss standpoint, unskilled labor means frequency in workers comp coming up and perhaps less-than-better quality of the buildings.
The whole issue around additional insured status is becoming more tenuous as more states pass anti-indemnification laws. And the lack of credit worthiness of subcontractors, even though the general contractor may be able to transfer that risk to a (sub) contactor, that contractor may not be there so it falls back to the general contractor.
Q: What would you say is the biggest challenge to a major infrastructure project such as the renovation of LaGuardia Airport or the replacement of the Tappan Zee Bridge in New York?
A: Certainly, finding enough qualified subcontractors to be on those projects. Capacity of insurance perhaps if it's one big project. Managing the safety and managing the inspection — is that going to increase the use of drones? We haven't even figured out that piece yet. We're waiting for the (Federal Aviation Administration) to figure out how all the rules are going to work around that unmanned aircraft.
Our contractors are using them more, and those types of projects would be really conducive to the use of drones.
Q: How would you describe the insurance marketplace as it exists today versus five years ago?
A: On the casualty side, I would say in "11, "12, "13, it was probably a little bit of a harder market, at least in some of the markets that I competed in. I would say over the last 12 months and, if someone has a crystal ball, you're probably looking at a year or two of flattening or slight decrease in certain lines of business, certain sizes of accounts and some of that will depend on loss experience certainly, but there's plenty of capacity.
Q: Are there any new products that have come out to deal with a particular risk that has emerged in the last five years?
A: Cyber is certainly one. I don't know how new it is ... but cyber is definitely an area that seems to be on the top of minds considering all the hacking and all the issues some of these major retail stores have gone through.
Q: What do you see as the essential elements of contractors' insurance and risk management plans.
A: From a risk manager's standpoint, do I have enough insurance that the company will be able to run the next day after a major catastrophic event? The risk management function should also be looking to the point of value and the strength of the insurance carrier's paper. Certainly they can get a cheap price or a cheaper price with limited service, but it's also important for them to be doing business with an A-rated company, and most contracts require that anyway.