Cash in on construction (Part 1)

Brokers with skills and expertise in the construction industry have a good chance to improve their bottomline by taking advantage of the ongoing boom

Cash in on construction (Part 1)

Business strategy

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Growth in the US construction sector is comfortably outpacing the country’s gross domestic product, and spending in construction is currently at its highest level since 2008, at a massive $1.7 trillion. Growth isn’t expected to slow anytime soon, which means the rebounding sector represents an attractive opportunity for those insurance professionals who have the know-how to take advantage of the sector’s performance.

“The booming construction industry creates a great opportunity for agents to provide contractor’s policies; however, contractors can be very highly service-oriented,” explains Jeanette Dostal, assistant vice president and underwriting manager at United Fire Group. “They have a lot of insurance requirements, sign a lot of contracts and need to know how those contracts, which vary from job to job, affect their insurance policy.”

Although standardization is increasing and certain trends are beginning to define the segment, contractor’s policies are often unique and vary between carriers. Agents must thoroughly analyze the terms and conditions of any policy to ensure it meets the specific needs of their client. This analysis should include thoroughly reviewing a client’s construction contracts, which will play a big part in deciding what the minimum requirements should be. If an agent refrains from taking this important step, there is a strong chance that the policy won’t fully conform to the business requirements.

When a construction client signs a new contract, their policy may require new obligations to be implemented. In some cases, clients will approach their agents to discuss the impact that any new contract will have on their insurance coverage. “Agents have to work out if those new obligations can be met by endorsing their policy,” Dostal says. “Every insurance company has different options available, and agents have to know what those options are. It’s certainly a technical segment of the industry and is very rewarding, but it’s also very challenging for agents.”

Complex coverage
Local economies across the country are feeling the benefits of the current construction boom. Contractors are being hired for a wide variety of mixed-use and multi-family projects in all regions, and are also seeing significant growth in commercial building, lodging and manufacturing. In a recent Future One Agency Universe Study, insurance agents identified the construction sector as the one with the most revenue opportunity.

But construction is a complex market for agents to navigate; it’s not as simple as offering an off-the-shelf policy. In fact, the myriad risks and potential for massive losses associated with the industry have made many insurance firms reluctant to offer coverage to general contractors and subcontractors. In many cases, agents find that excess & surplus lines carriers are the only viable markets available to them.

“Coverage in the construction liability field is complicated, and brokers really have to fully understand all of the di­fferent coverages available, which can be di cult,” says Douglas Holmes, president of Shield Commercial Insurance Services. “It’s not an easy task for the broker because the coverage is complex, the language is complex, and the endorsements are also complex. In each case, a broker should explain any policy restrictions to the client and then be sure to get a signed disclosure from the policyholder, which states that they fully understand the restrictions that are in place.”

The volatility of the construction industry adds more complexity for agents operating in the space. Any agent who’s serious about becoming a specialist in contractor’s insurance has to invest a significant amount of time and energy – and even then, they may experience periods of low growth if the wider economy starts to slow. (When national unemployment hit 9.7% at the beginning of 2010, for example, unemployment in the construction sector reached a startling 24.7%.)

In today’s uncertain times, any agent who wants to maximize commissions has to be a specialist in not just one area, but many. “Agents need to diversify their portfolios and not be totally dependent on contractors, even if that might seem tough or impractical,” Holmes says. “They have to be flexible and have backup lines of business – inland marine and commercial auto and trucking are good fits for specialists in the contractor space.”

Any agent who spends the time to properly educate themselves on the various intricacies of contractor’s policies will undoubtedly be in a stronger position to provide their clients with top-level service. It’s an industry that relies on reputation and referrals, so any agent who can stand out from the crowd has a good opportunity to grow their business – not just today, but for the long-term. And despite the complexity of the construction space, all of the economic data points to favorable market conditions for insurance agents.

(To be continued...)

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