The Expert Podcast

We've talked before about the shortage of construction workers being a factor in the contracting industry, but in the insurance industry, it's also creating a lot of problems and some possible chronic delays and higher costs for insurance claims. This is something that hasn't really been an urgent or crisis factor as of yet, but in the next year or two, it could be a big deal. We're in a unique position to see it from both sides: we're both a licensed insurance agency and also a licensed general contractor, so we see it from both ends.

There's a great article in the insurance industry publication about how skilled labor shortages, building contractors, and risk professionals need to be aware of this. They talk about a storm brewing for the construction industry. How does the labor shortage affect the insurance market, and how could it be more of a problem than maybe people realize? Well, in the construction industry, it can create a problem because, according to the head of construction for The Hartford, which is a big insurance company, labor is a significant issue. Skilled labor shortages hinder the ability of construction companies to uphold contracts. So if you're a builder, contractor, or construction company, and you can't get labor, maybe you violate your contract, which could lead to an insurance claim.

What if you're not a builder or construction company? How does that affect your insurance? Well, if a trade doesn't have enough workers to complete a job, you might have to subcontract it out, which can raise the cost. So, if you have damage to your building, like a fire or water damage or some other structural problem, and you need to hire contractors, if it takes longer than the original insurance underwriting figured, that claim might be higher. It could also raise your insurance rates in the future.

From the contractor side, when you're bidding on a job, you have to factor in the fact that you have less labor, which means you can't take on as many jobs. You have to be more selective in your bids, making bidding more competitive, which leads to higher prices. Additionally, if you put less experienced workers on a job site, there’s more potential for claims—people getting hurt, people getting injured, or even defective construction. All of this, at some point, percolates back into the insurance market when they factor in claims expenses and even loss of income or business interruption.

So, if your business is damaged or needs repair and you have business interruption insurance where you're getting payments to cover your lost income, but that job takes eight months instead of three months, that's five more months of lost income. That’s going to be included in your claim and could raise rates in the future. Even though you're getting paid for that lost income, you won't be able to grow. That’s six months of growth that you lost, and it might reverberate for years. If you're constantly growing, adding new customers, and doing business development in your industry, but you don't have that six months to grow, you're just kind of stagnant. Even though you're getting the insurance payments, you'll be six months behind forever. That six months can add up exponentially, leading to losses that you may never recover from.

So, the labor shortage in the construction industry affects more than just general contractors. It affects insurance and even the direct bottom lines of businesses themselves.