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The Next Big Opportunity

By 2020, Canada will be the world’s fifth largest construction market, say those in the know.

It’s not that farfetched, considering the federal Liberal government’s commitment to spend $125 billion on infrastructure over the next decade; and the provincial governments’ additional infrastructure spend commitments – all together, apparently, totaling over half a trillion dollars.

Current trends in the industry reveal increasing foreign investment, larger scale projects and a need for more comprehensive insurance coverage, says Chris Sekine, Trisura’s senior vice-president of surety.

Construction insurance brokers should therefore be prepared for growth, and build their expertise. However, Sekine says, certain areas of Canada are due to see more expansion than others because of the economic environment. “Over the last while, the economy in Canada has been a bit more tenuous, and construction, being a big part of Canada’s GDP, has been impacted. That’s occurred somewhat faster in Alberta, given what’s happened to the price of oil and the impact that it’s had on the construction industry, especially up in the north part of Alberta around Fort McMurray.”

Quebec has taken a hit as well. Following the contractor scandals that occurred in Montreal in 2011, the Charbonneau Commission was put in place to investigate corruption in the province’s construction industry. As a result, Sekine says, “especially in the City of Montreal, and I think even all the municipalities that surround it, there’s a sense of fear, certainly amongst people who work for the municipalities, in approving or doing anything because they don’t want to be implicated in any potential scandal.”

This amount of scrutiny into business dealings impacts contractors’ ability to get paid on a timely basis. It impacts change orders getting approved, and extras getting approved. “So work generally slows down and the business environment gets more difficult for contractors,” Sekine says.

Similarly, Dan Calderhead, the national director and surety practice leader of Jardine Lloyd Thompson (JLT) Canada, says some construction companies may be tempted to leave economically depressed areas of Canada because of lack of work. However, moving geographically can be risky, he says. “They’re entering an environment that has more unknowns that could have a negative financial impact. There is more risk when you leave your backyard.”

Projects Getting Bigger and Bigger

Peter Campbell, the Halifax branch leader at JLT Canada, says he’s seeing an increase in the scale of construction projects. “I don’t think that’s just a regional trend for us. The types of projects that developers envision, and design professionals create, are larger and more complex than anything I’ve seen in the past.”

…the best way for construction insurance brokers to mitigate risk is to bring the parties… together to discuss the variables involved.

One reason why projects are getting larger is because of the government’s infrastructure spending, says Sekine. “Large contracts are going to revolve around moving people, and we see that in large transit projects. In Edmonton and Calgary, Alta., for example, they built ring roads around the cities. Those are all massive construction projects.”

He’s also seeing a shift towards “project bundling.” “A few years ago, rather than tendering schools on an individual basis, the province of Alberta started to bundle a whole bunch of schools together and award that to one contractor.”

Previously, smaller regional contractors had the capacity to bid on a single school project, “But as soon as you bundle 10 of them together, now it’s only going to be the largest of contractors that are able to bid for that work,” Sekine says.

A side effect of the increasing scale of infrastructure and bundled projects is increased foreign investment, Sekine says. “We’ve definitely been seeing an influx of foreign companies coming into Canada looking to build some of those large projects. And it makes it difficult on the smaller to mid-sized regional contractor.”

Campbell says foreign investment isn’t limited to construction companies, though. “A lot of foreign insurers start to target the Canadian marketplace. It makes our job a lot easier, to go out and cultivate competition and deliver results for clients.”

Zurich is an example of a foreign insurer that has successfully expanded into Canada.

Scott Rasor, Zurich’s practice leader for construction, says “as long as a reasonable return, that’s higher than what that capital could be used for in a foreign land, is available in North America, we’ll continue to see investment and bidding on projects by non-local [construction] entities, generally in partnership with local entities.”

This will be positive for Canadian contractors, he says. “Though foreign investment may come in, it won’t push aside the need for local general contracting construction management and actual building in the local markets. It will still raise the employment and the work in Canada when the projects are bid.”

However, with the federal government planning on injecting billions of dollars into infrastructure and construction, there is one major risk Rasor sees challenging the industry’s growth. “Although very large technology is being employed to build these projects, there are still hundreds, if not thousands, of workers who are necessary to do everything. It will place a lot of pressure on the general contractors to make sure they have adequate labour combined with technology and processes to complete the project on time,” Rasor says.

How Brokers Can Mitigate Risk

The consensus among industry professionals is that the best way for construction insurance brokers to mitigate risk is to bring the parties involved in these large construction projects together, to discuss the variables involved.

“As underwriters, we want to understand from the general contractor how they plan on achieving the project successfully,” Rasor says. “This means the project team has conducted labour studies, understands the environment, and is using both tech and labour hand-in-hand to co-ordinate phases.

“We’re encouraging our insurance agents, when their customers are looking at this business, to bring the underwriter to the table so information can be processed promptly, and the insurance quote can go out within the time necessary, to assure the ownership group that the insurance placement is proper and protects them.”

According to Campbell, the added benefit of holding a meeting at the beginning of a project is easing a potential claims scenario. “Whenever there’s a claim, it is an emotional time. An insurance policy is a complicated legal document, and a meeting prior to a loss occurring, with positive underwriters and claims professionals, helps smooth the claims process.”

Additional sources: The Globe & Mail, CBC News

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Copyright © 2016 Transcontinental Media G.P. This article first appeared in the December 2016 edition of Canadian Insurance Top Broker magazine