Doug Houser:
From Rea & Associates Studio, this is unsuitable, a management financial services podcast for entrepreneurs, tenured business leaders, and others who are ready to look beyond the suit and tie culture for meaningful measurable results. I'm Doug Houser.
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Today, Joe Urquhart, vice president at Overmyer Hall Associates, is here to talk about trends in construction that he's seen, insurance and risk management issues you may be facing, and our upcoming third annual construction kickoff event. Welcome to unsuitable, Joe.
Joe Urquhart:
Thanks, Doug. Thanks for the invite again. Look forward to it as always.
Doug:
Yeah. Great to have you back on. Before we get started, I know hopefully we're on the precipice of a new hockey season here coming up. What's your outlook for the Blue Jackets this year?
Joe:
Positive as always. I'm a true Blue Jackets fan, but we'll wait and see. It's going to be another very strange year if we're not able to go to any games. As you know, hockey is much more fun in person than watching it on TV, but I look forward to whatever happens. It'll be good.
Doug:
Yeah. Yeah. I'm with you on that. We'll hope for the best. Let's get started here. What are you seeing and hearing about the construction market as we wind down 2020 here and start to look forward to '21?
Joe:
Yeah. Surprisingly, it's been, I think, a good year, given everything that's going on. Just crazy. Who would've thought as we sat in our offices back in the middle of March that this is where we'd be with all the COVID and the shutdowns and just everything that's going on? Just crazy.
Luckily, I think in many ways we were very blessed in construction to be related to the construction industry because it was deemed essential and everybody kept working. And I think for the most part coming out of 2020, and there are some exceptions obviously, but all of our clients have done well, been busy and kind of looking forward to turning the page, but it was a busy, successful year. Clearly, there are some new issues that people had to deal with never before, but we're pretty resilient. I think contractors are pretty resilient and figured it out, I think quickly.
And it's been a positive year. Most of the clients that I speak with have a nice backlog going over into '21. You're probably having the same conversations with your clients. It's very positive except there are some exceptions, people looking for some work, but I think '21 should be another really good year, particularly the first half, just from a pure construction putting work in place standpoint. Should be good, so it was good.
Doug:
Yeah. No, I wholeheartedly agree. Certainly, the construction industry has been fortunate certainly more so than many others. And I think the other thing too, we're very fortunate to be here in central Ohio with the continued growth and all of that. We certainly get, I would say, a little more insulated as it were from some of the downturns that we see in some other markets. Wouldn't you agree?
Joe:
Yes, I totally agree. The multifamily, some of the other commercial developments, housing is going strong again. On the residential piece, we don't have a lot of residential contractors, but we have some. They're just so busy because people are home. They're not traveling or not doing anything, so we're going to do an addition or we're going to remodel the kitchen and it's just crazy what's going on there.
And again, I think we're really blessed. There are, again, some pockets. If you're in hospitality, maybe you saw some delays in projects or projects getting canceled, but for the most part really strong as we continue to build out Columbus, and there's certainly more need for infrastructure for housing, apartments, if you read any of this statistics, so continues to be strong.
I think labor is still a big issue, right, for construction. Even though this COVID situation, a lot of people were laid off and trying to find skilled labor that wants to work and show up on time and those kinds of things is still a real challenge.
Doug:
It is. And it's interesting you say that too because I was with one of my good roofing contractor clients yesterday and he said, "Look, it's been difficult." He's got friends that own restaurants and things like that. They've been obviously devastated, but he said, "It's not like I can take an unemployed or underemployed restaurant worker and turn them into a commercial roofer overnight. It just doesn't work that way." And we're also seeing supply chain issues with materials and material price increases that are significant as you know with copper and lumber and [crosstalk 00:05:46].
Well, when we talk about COVID a little bit, what about from a risk management perspective, Joe? What have we seen in terms of the impact on clients?
Joe:
Yeah, that's a great question. I get that a lot from different people I talk to, clients, or others in the industry. And for the most part, just talking construction, other than maybe some projects that have been delayed or you have a couple that is canceled, but for the most part, everything's moving forward, but under new guidelines now, right? New safety issues, risk management issues. I think the work itself is still moving forward, maybe not as efficient as it was or the productivity has gone down because of social distancing. And I had some people have to rearrange how they get to work in trucks, right? We can't put all these employees in one truck now. We got to split them up. It's just crazy stuff like that.
I think those are the things that contractors have kind of learned now, and what was interesting at the beginning when it first happened, it's like, "Oh, who's going to pay all these costs? How are we going to absorb that?" But now when they've picked up new work and as they're bidding on projects, they're incorporating all that, hand washing machines and face masks and all that kind of thing. That's moving forward. I think [inaudible 00:07:05] has kind of figured it out.
The risk itself is the unknown. I get that question a lot about, "Do I have to worry about getting sued or what if one of my employees gets sick and takes it home to a family member or subcontractor gets sick, a vendor, somebody's on-site?" And those are the big unknown questions. In the industry, just insurance company talk, reading articles from attorneys, those kinds of things, there's a lot of concern for that, but we have not seen any lawsuits, potential lawsuits coming in yet across our client base, which is really, really good.
I'll still have to wait and see as it plays out in the environment, what happens in six months, what happens in a couple of years depending on how aggressive some attorneys get, but we have not seen that yet. And I think my advice to clients is what you need to do to defend yourself is to have a good program, a good risk management program, and just follow what the state is telling you to do, what the CDC is telling you to do. And if you can go above that, great, but just document it and do it. There are some people that say they're following all the guidelines with kind of a wink and a nod and whatever. Can't be cowboys, so to speak. That doesn't work anymore. The ones that are really enforcing it, safety and training and toolbox talks, that's how you defend yourself, but so far so good.
Doug:
Yeah. I agree with you. It's one thing we preach too in our business certainly is document, document, document. It's much the same when you're talking about risk management. Make sure that you've got those policies, procedures, and document the heck out of what you're doing [crosstalk 00:09:00]-
Joe:
Yeah. It's kind of funny with the recent surge that we've had ... you've probably noticed this too ... many clients are saying, "No, you don't need to come in anymore," right? I've been doing many, many more meetings, insurance meetings just by Zoom or whatever the platform that you like. I don't particularly like that, but I think that's a good, sound reason unless it's an urgent reason to get together in an office. You don't really need to do that right now. Why expose either me or have me expose your employees to something? It's just not needed. Everybody's kind of backing off. And I think that's a really good decision to do that.
Doug:
Yeah. Let's pivot a little bit and talk about business coverage from an insurance perspective. What are we seeing in the market as we move into '21? Is it softening, hardening? I mean, are they adjusting because of COVID, some of the coverages? What's going on?
Joe:
Yeah. Good question. As you know, 2020 was a real challenging year, not for all businesses, but for many, particularly construction, larger contractors. I kind of feel they felt it more than others and had nothing to do with COVID really. It was a change in the marketplace that's been coming for a couple of years, really gained a lot of traction in 2020, and then COVID I think exasperated it, but the market is still what I would consider a very tough, tight market in certain classes of business, certain types of businesses.
If you've heard me speak before, those risks that have really large fleets and large fleets with really heavy trucks are targeted right now from a standpoint of seeing bigger rate increases than not and that's not going to change, I don't think, even though it'll start to work itself out a little bit. Maybe it won't be as big a rate increase next year, but I think that's still going to be problematic. And we refer to it as capacity in the marketplace. Excess umbrellas are going to be still very difficult to work through if you have really large umbrellas, right?
If you're a larger contract, depending on the contracts that you sign and what's required, if you're getting really anything over 10 million, it's going to be just something need to watch. It'll probably cost you more money next year if you have a 15, 20 million, $25 million umbrella. In years past we had one carrier that could do all those limits and now a lot of insurance companies are watching [inaudible 00:11:33] at term capacity. They don't want to put that much out on the line. Maybe they did, as an example, 20 million last year. They may say, "We're only going to do 10 this year," and whoever your insurance advisor is, have to place an excess umbrella over that to get your 20 million.
I think those issues will in the marketplace, auto, umbrellas. We're seeing some issues because of COVID ... this is interesting ... on executive risk lines-
Doug:
Really?
Joe:
... generally directors and officers.
Doug:
Not kidding.
Joe:
And not that we do ... we don't really do any, but publicly traded companies, and there's some, are feeling a lot of pressure for their D&O-
Doug:
Interesting.
Joe:
COVID, right? Because they're afraid of some either class action lawsuits for litigation because they didn't handle the COVID pandemic correctly, right? It affected the stock price and that kind of thing. But we are seeing that.
And then the last thing which you know I love to talk about is the cyber liability risk, which is just increasing daily as far as wire transfer fraud, ransomware. This is something as a business, whether you buy insurance or not ... If you don't want to, that's fine, but you better up your security measures on your IT as far as how you're handling your security on IT.
Doug:
Yeah, no, absolutely. I know ... quick plug here. Our Rea & Associates cyber team, they are busier than ever. In fact, we had a fairly significant client that got hit a second time with the ransomware and I find it interesting. They said that if you've been hit once you're actually a greater target to be hit again. That's something I learned from our team. But what are you seeing in terms of coverage related to cyber, Joe? Are people getting more in tune with that and lining that up or is that still very underserved in terms of what clients [crosstalk 00:13:41]-
Joe:
I think it's still underserved a little bit, for the most part. Particularly, I think contractors have this mentality like, "Oh, they're not after me. They want to go to banks and big corporations and they're not going to bother with me." That's just not the case, right? It's just not true. That's has been historic, that kind of reply, I think.
And then second, I think the price, and what you'll see, premium for cyber is going to go up because of the number of claims that some of these insurance companies are paying under ransomware and this wire transfer fraud, which is referred to in insurance lingo as social engineering, but a significant amount of claims activity there. If you got a cyber policy, it'll probably cost you more next year. If you don't, if you get a proposal on it, at first it might be a little surprising, the premium that they're charging, but the risk is just incredible.
What they'll throw out, Doug, just as a best practice is the number one thing you can do is look at your current system. And there are open ports and there's a couple ... and this starts really getting into some computer talk ... there are certain ports that if you leave them open ... and I'm going to throw this out ... port 445 is one of them, whatever. A lot of traffic goes in and out of that port, if that port is open, it's like leaving your back door open to burglars, right? It's just an open invitation for some malware to get in there, so you need to really close those ports that are at risk.
Doug:
It's just scary stuff. And you talk about social engineering and you see these phishing emails and all that. I know as a firm internally, I mean, we get those that they're trying to train us, and they send us these test scam emails about every week or so. And it's really good exercise. It's amazing.
Joe:
Yeah. There was a story and I'll bring this up to you because it's public information. It was in the paper. The city of Toledo just got hit and it was on a construction project. They had some projects. They were building a new building or whatever they were doing. And they got emails from the contractor asking to get paid ACH payments so the person within the city of Toledo went ahead and transferred the money to them. And this happened several times. Found out it was a fake email, a bogus email. They transferred over $600,000 to a fake account. They'll never get that money back and probably don't have insurance for that large an amount. We see that a lot in the owner to contractor or contractor to subcontractor emails where they are getting hacked and fake emails are being sent out.
Doug:
Yeah. That's scary stuff. I know from my days in, in banking too, it's called to know your customer. I mean, ultimately, make sure you're doing those extra steps. Place a phone call just to make sure you're confirming that it is what it says it is and the right people are involved, and it happens, too. The other thing we're facing as you said, we're all working more remotely. It's a different environment. You can't just necessarily walk down the hall and ask somebody, "Hey, is this okay?" kind of thing so maybe people skip a few steps.
Joe:
Yeah. I think a lot of the things I've read, again, it happens to a lot of our contractor clients, where they're sending some of their staff homes to cut down the number of people that have in the office. Well, when somebody is working from home, they might be on their home computer, and is that up-to-date on security, or your laptops? There's a lot of risk for stolen laptops, stolen cell phones. Misplaced cell phones allow a gateway to get in.
Doug:
Right. Yeah. It's interesting too, job sites, you think about this, I mean, everybody's using more of the ... They're doing more with tablets and wearables and things like that to track what's going on on the job site, drones, and all those things. Have you seen that impact, risk, and coverage, and all that, the job site technology?
Joe:
Not so much from a risk standpoint other than, yeah, you got to make sure those tablets are secure, right? I think in a lot of ways, some of this technology, particularly in safety technology, it's amazing what they can do as far as some of these vests that they have now that have GPS. Contractors, safety people can track where their employees are. They can track if an employee's going in a zone that they shouldn't be in. If there's some building collapse, they know if there are people are in there. I mean, it's just unbelievable some of the technology upgrades that make construction safer. But yeah, there is an element if you start using that that creates some more risk, but I think the benefits far outweigh any type of negative risk.
Doug:
Yeah, absolutely. Any big changes you see in '21 in terms of what insurance documents look like, what is in those agreements, anything like that that you're hearing at this point?
Joe:
No, I don't really think so. Doug. I think it's just more of the same. I don't like to look out too far because you always get surprised, but I think the first quarter, the first half will be very much like 2020. And let's hope that the vaccine really takes effect and starts bringing us back to whatever our new normal is going to be. We'll hope for that. I know everybody will.
But I think from an insurance market standpoint, it's going to be more of the same, but with a caveat there. You're just going to get more questions as a client, right? As you get ready to go through your insurance renewal or whatever you're doing, there's just going to be more questions. Some of them may have to do, "Have you, have you been impacted by COVID? What's the impact?" Construction's big. "Did you get [inaudible 00:20:08] money? How has that helped you? Have you had layoffs?" There's just more underwriting going on and you just got to deal with it right now.
Doug:
Absolutely. Speaking of which, we've got our upcoming January kickoff event, which will be January 22nd. Do you want to give a little plug for that?
Joe:
Yes. Yeah. Yeah. I look forward to it as always. It's a great time, I think January, to kind of look forward and forget about 2020, but I'll do a deeper dive on at least how we see the marketplace as far as rates, coverage, the big things, what are we anticipating on rates so contractors anticipate that maybe and anticipate that in their bids.
Particularly, I'm going to talk about a little bit more underwriting because what you need to do as a contractor is put yourself in the best position to get a favorable renewal. And there are certain things that you need to be doing, certain best practices. I'll be reviewing that and talking about some other new upcoming risks that they should be thinking about. And so that'll be more of a deeper dive.
Doug:
Yeah, it'll be fun as always. I'll be talking a little bit about some of the economic outlook and what we're seeing from a demographics and economic perspective, as well as the financing environment, so should be good. We will be virtual this year, of course. Unfortunately, we're going to be doing it that way rather than in person as we normally do, but that'll present us with some opportunities as well. Maybe we can get some more folks involved and-
Joe:
Make it easier to get. Instead of driving somewhere, just pop on and get some good information, get updated, and take away some best practices hopefully and some good thought leadership.
Doug:
Absolutely. By the time this gets out, we'll have registration open and hopefully, folks could join us on January 22nd.
Well, Joe, thanks as always. It's always a pleasure to talk to you and get your insight. And I can truly say in all my years in financial services if you want deep knowledge and you want true transparency when it comes to risk management and insurance, Joe is the guy to talk to without question.
Joe:
Thank you, Doug, as always. Appreciate it. Thank you.
Doug:
Absolutely. Absolutely. And if you want more business tips and insight or to hear previous episodes of unsuitable, visit our podcast page at www.reacpa.com/podcast. And while you're there, sign up for exclusive content and show notes. Thanks for listening to this week's show. Be sure to subscribe to unsuitable on Apple Podcasts, Google Podcasts, or wherever you're listening to us right now, including YouTube. I'm Doug Houser. Join us next week for another unsuitable interview with an industry professional.
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