Diligence, expertise drive heavy construction market success

Long-term prospects are good as upgraded infrastructure needs grow

By Dave Willis

Jobs are out there. We see them on a pretty regular basis." That's how Michael Yovino, senior vice president/casualty broker, Crump Insurance Services, sums up the heavy construction business these days.

"A number of projects are coming across our desks each month," he adds. "We are seeing more tunneling and rail projects and there is a fair amount of infrastructure and highway work going on."

At the same time, competition among contracting firms is intense. "For a lot of the firms, backlogs have shrunk," says Jim Carr, national underwriting officer, Travelers Construction. "There's much more competition now for the work that is available."

One challenge heavy construction firms face is timing. "State and municipal budget constraints are having a big impact on raising capital through traditional bond offerings," Carr notes. "That's pretty difficult these days. There's more talk about public private partnerships, but those take a lot of planning and cooperative legislation to achieve."

Yovino concurs. "A lot of projects don't always happen right away because of funding," he says. "I suspect much of that is tied to the economic downturn. Putting together project financing is a challenge, so the sell cycle for the business can be rather long."

To cope, Carr adds, construction companies are partnering up to compete for a limited number of available projects. "Lately, we've seen a lot more joint venture work among contractors," he says.

Along with heightened competition comes increased contractor belt tightening. "Construction companies are taking a hard look at their overhead and are working to adjust to the reduced margins," Carr explains. "They're already being impacted by rising material costs and banks are still rather conservative on lending and lines of credit."

But the longer-term prospects are good, he adds. "The transportation, water supply, wastewater and natural gas pipeline infrastructure systems have to keep pace with population increases," he says. "Plus, many of the current infrastructure systems in place are aging, and they really need to be replaced or upgraded."

Covering heavy construction

The insurance market is quite competitive these days. "From my perspective as a wholesaler, the insurance marketplace for heavy construction is very soft," Yovino says. "Premiums are still fairly inexpensive and there's a lot of capacity in the market. Of course, that helps when you're putting a program together. It's a matter of understanding the best structure to make sure coverage is appropriate for the specific risk and its work."

While contractors are watching the bottom line very carefully, they're still looking for service and construction industry knowledge from their insurance partners. "That's a major factor in insurance placement decisions," Carr notes.

To address costs, he adds, "Some contractors are reconsidering their umbrella limits. Some contractors are shifting from guaranteed-cost programs to loss-sensitive programs. We have been very successful helping with that transition because we can offer both types of programs. As contractors' needs change, Travelers can respond to those changes."

Retail agents and brokers can bolster heavy construction insurance and risk management services—and knowledge—through partnerships. "Risk management services offered by carriers with dedicated construction divisions can be quite helpful," Carr says. "Many states require certain safety-related training for contractors, and agents can help clients access such training through those carriers to help contractors comply with such mandates."

In addition to sharing materials and services his firm offers, Yovino suggests tapping outside organizations, as well. "If you're going to get into construction, spend some time on the IRMI Web site [irmi.com]," he says. "It's a great resource. It has a lot of great articles and white papers written by industry experts. The organization's annual conference is a great resource, too." Yovino encourages agents to attend along with clients. "It's a terrific source of knowledge and, in some cases, CE credit," he adds.

Capturing opportunities

In addition, he says agents and brokers interested in growing their heavy construction business need to do some homework and build out their organization's capabilities. "A lot of the larger projects tend to go into wrap-ups, which come with their own nuances and specialties that need to be addressed," Yovino explains. "You need to have the resources or have an administrator to handle these projects for you from an enrollment standpoint. Often, they require a lot of certificates and a lot of special additional insured endorsements, because a number of public entities are involved.

"In addition, you need to have a good working knowledge of construction," he says. "And you should have a relationship with the marketplace, because you're going to be working actively with these markets on these large jobs."

Yovino encourages agents and brokers to look at their existing client base to find new opportunities. "Focus on the space that you have," he says. "Some retailers we deal with looked at their books of business and realized they insure developers that are general contractors. See what kind of projects they're doing and put together a program to insure the projects. They're already getting requests for certificates of insurance or comp dec pages; maybe there's a way to get the projects."

Often, he adds, opportunities are missed because agents and brokers don't seek them out. "Ask for referrals," he advises. "If your clients think you're doing such a great job, find out who they know. Ask. You can uncover things by knowing someone. If nothing else, at least you can compete for a spot at the table."

"Contractors want to work with agents who understand their business," Carr explains, "so it's important for agents and brokers to stay attuned to what's going on in the construction industry." Where more information on a certain construction-related topic is sought, reach out to your partner. "Agents and brokers who work with carriers that have dedicated construction resources are better prepared to serve their contractor customers." Travelers Construction, for instance, has dedicated resources in underwriting, risk control and claims management.

Yovino concurs. "There are a lot of coverages specific to the heavy construction industry that agents and brokers might not be familiar with," he says. "Don't fake it, because people will see right through you. As a wholesaler, we can operate as an extension of a retailer's operation, providing expertise and market access where it might not otherwise exist."