The Internet of Things, construction risk and insurance: A transformational combination

David Bowcott

When risks manifest on the construction project there are four balance sheets that are most often affected: the contractor’s balance sheet, the insurer’s balance sheet, the design firm’s balance sheet and in some cases, the owner’s balance sheet. The pain inflicted upon the finances of these four entities is often done so in painful isolated silence. The contractor tallies up its impact from the loss, and then the insurer, then the design firm and then the owner.

Very rarely do these four entities sit back and combine their respective losses due to risk in order to try to figure out what happened and how it could be better managed in the future. If there were better communication around risk before, during and after the construction project has been executed, one would think that the ability to reduce material risk impacts would be reduced.

In the coming years it does appear that the construction industry will start not only combining the collective impact of risk on all major stakeholders’ balance sheets, but will find new procurement models to more effectively collaborate, and will harness the power of technology to create foundational decision making impacts.

Of interest, most in the industry forget the impact of construction risk on the insurer’s balance sheet. The contractors, design firms, and owners collectively consider themselves the key stakeholders in the management risk and the impacts of risk. Though the insurer does not have a material role in managing risk on the project, they do bear a significant financial burden when risk manifests on the project via their property, casualty, professional, environment, subcontractor default and surety policies/bonds they issue for the project.

Their financial exposure to construction risk has been highlighted over the last few years as insurers experienced massive increases in claims costs on almost all construction lines of cover. Because of these losses insurers have let the industry know they are not particularly happy with the outcomes on their projects and have let the construction industry know this by charging materially higher premiums. Construction insurance rates have been climbing without slowdown over the past four years.

This has been a global phenomenon and the construction industry is starting to pay attention and investigating new paths that they hope will result in improved risk allocations and risk management.

With a more influential seat at the table, the insurance industry is using its claims data to help the construction community better understand the total cost of construction risk. In addition, insurers are anxious to find ways to work collaboratively with the industry to improve risk outcomes for all construction stakeholders. Progressive construction insurers are starting to recognize that they need to take a portion of the premium they collect and invest it in helping the industry better manage risk – with better risk management insurers will experience better underwriting results.

The time has come for the insurance sector to stop spending money on claims, and legal fees associated with claim disputes, and start working with all construction stakeholders to prevent and mitigate the claims covered under the policies they issue. On this front, there is likely no greater investment opportunity for insurers than the growing power of the Internet of Things (IoT) installed on the construction project (and further installed on the post construction operating asset).

The construction and build environment IoT universe is massive and continues to grow at a rapid rate. If there isn’t an IoT solution for a particular risk, there will be. The following represents a brief overview of some of the most impactful IoT risk categories:

1. Water mitigation IoT – Water sensors, pressure sensors, and automatic shut-off valves.
2. Environmental IoT – Temperature, humidity, air quality, particulate counts.
3. Worker injury IoT – wearable technologies, asset tracking sensors, computer vision solutions.
4. Site-specific weather IoT – dedicated weather stations and weather prediction algorithms that provide precise weather data.
5. Fire IoT – detection and mitigation technology to prevent fire risk.
6. Concrete integrity and monitoring IoT – tools to monitoring proper curing and quality of concrete.
7. Structural integrity IoT – structural monitoring IoT and digital scan solutions.
8. Supply chain and material tracking IoT – monitoring of timing and quality of goods in transit, monitoring of the performance of subcontractors and suppliers, logistics industry monitoring.

NOTE: All of the above IoT categories also have massive productivity impacts and should be considered when measuring the full impact of these solutions. These are but a few of the IoT categories that are already showing risk mitigation delta impacts as high as 95 per cent. With more investment by all construction stakeholders into the IoT universe of solutions, more data will be made available to identify the most impactful IoT categories and companies. Insurers need to realize this new seat at the project risk control table needs to be used to help the construction industry transform its jobsites into more aware environments (even predictive environments) and for a small investment from the premium they collect, they could have a massively positive impact on their future underwriting results!

David Bowcott is Global Director – Growth, Innovation and Insight, Global Construction and Infrastructure Group at Aon Risk Solutions. Please send comments to editor@on-sitemag.com.