Construction Market Update – From Industry Growth to Business Insurance

Posted by Ronald Longueira on Tue, Dec 17, 2013 @ 11:58 PM

As another year winds down, analysts are weighing in on what’s been happening in the construction market this year and what 2014 might bring. Here are some of the highlights:

The good news

Overall, construction spending is up, although certain sectors and states are doing better than others. According to the Midyear Update to the 2013 Construction Outlook from McGraw Hill Construction (http://construction.com), by the time the final tally is in, new construction starts are expected to be up 6 percent this year to $506 billion.

Leading the pack is the housing market, with single-family home building on track to show 28 percent growth – though rising mortgage rates could affect the market in 2014. Multi-family housing growth was at 20 percent for units and 23 percent for revenue at mid-year, and these units are still attractive to investors, so growth should continue.

Commercial building is on track for a 15 percent gain, beating McGraw Hill’s 12 percent prediction. And public works projects, predicted to decline by 1 percent, instead saw a 3 percent increase. In fact, an unusual surge in public construction in October pushed total construction spending to its highest level since May 2009.

Institutional building is still declining, though not as drastically as anticipated. McGraw-Hill predicted a decline of 13 percent in 2013, but building has only dropped 5 percent. And university construction projects remain strong, which should help offset declines in other areas.

The biggest loser is manufacturing construction, which was anticipated to increase by 8 percent but instead dropped 8 percent. A soft export market, a weak dollar, and uncertainty in the markets and the new healthcare law are being blamed.

Bottom line – the demand for housing is still strong, the market is looking better for commercial building, and commercial real estate loans are slowly getting easier to secure. So recovery is underway, albeit at a slow pace.

The not-so-good news

According to Marsh Risk Management Research’s latest briefing, Building Safety and Leadership in the Construction Industry, a jump in the number of construction-related fatalities is demonstrating the need for a renewed commitment to safety. The U.S. Bureau of Labor Statistics (BLS) reports that the number of private construction sector deaths in the U.S. rose 5 percent to 775 in 2012. That’s the first annual increase in work-related fatalities since 2006. Falls, slips and trips continue to be biggest culprits, accounting for 36 percent of all incidents.

Part of the problem is the shortage of skilled workers. Many left the industry during the recession that started in 2008. Some took jobs in other fields, while others simply retired. So as the construction industry continues to rebound, a labor shortage could stall the recovery.

Insurance costs also continue to rise. According to Marsh’s Construction Market Update—First Half 2013, U.S. construction firms generally paid more for their insurance in the first half of 2013. Rates for general liability, umbrella and excess liability, workers’ comp, and residential construction insurance rose between 3 and 7 percent on average during that time. Non-residential construction insurance and contractor’s, architect's, and engineer's professional liability coverage were also up. But rates for builder's risk stayed relatively flat during the first half of the year, and contractor’s pollution liability remained basically flat, even dropping 5 percent in some markets.

Bottom line: As the construction industry continues to rebound, running a well-managed construction firm with a commitment to safety is your best defense against legal, financial, and reputational risks. And partnering with a construction insurance expert like BNC Insurance and Risk Advisors is the best way to get the customized coverage you need with the best pricing and terms in the industry.

Interested in learning more about how we help the construction sector? Download our Construction Case Study Collection or contact us.

Tags: construction insurance, business insurance, construction market, construction risk management