The U.S. construction industry is facing a significant challenge: a growing shortage of skilled labor. Factors such as the Great Resignation, an aging workforce and economic fluctuations have widened the skills gap, pushing material and wage costs higher. 

“The overall U.S. construction industry has experienced a slow decline in skilled labor and the past few years have exacerbated the skills gap even further," says Lisa Uzzo, principal, Inland Marine at Falvey Insurance Group. “The Great Resignation, an aging workforce, restrictions on immigration, inflation, and fluctuations in the economy all have contributed to the industry-wide shortfall and increased cost of materials and wages." 

In 2025, the construction industry will need to bring in nearly 454,000 new workers on top of normal hiring numbers to meet industry demand, according to the Associated Builders and Contractors. And while construction employment is growing in general, the implications from a shortage in skilled labor are varied—from delays in project completion to an increase in workplace injuries, as well as an increase in the cost of builders risk insurance. 

“The lack of qualified skilled labor continues to be a significant challenge in the industry," says Ryan Mee, vice president of inland marine underwriting, Liberty Mutual. “Without the necessary labor force to meet local construction demand, the market faces project delays, potential quality issues, more abandoned projects and ultimately higher costs."

To recruit and retain more workers, nearly two-thirds of respondents to an Associated General Contractors of America (AGC) survey said that they increased base pay in 2023 more than they had the year before and a quarter introduced or increased incentives or bonuses.

Meanwhile, combined hourly retail labor costs increased by 4.3% from July 2023 to July 2024, according to “Verisk's 360Value Quarterly Reconstruction Analysis for Q3." Concrete masonry labor costs rose 20.4%, increasing five times more than the next-highest group, drywall finishers and installers, whose rates increased 4.0%. 

While the cost of materials rose more than labor costs—4.4% for materials compared to 4.31% for labor—the impact was seen in total reconstruction costs in the U.S., which increased 5.2% from July 2023 to July 2024, according to the report. The increase was an acceleration from the 4% cost growth from July 2022 to July 2023. 

In such a dynamic market, agents can help clients navigate the changes that are needed when purchasing builders risk coverage. “Naturally, the higher labor and material costs are putting pressure on limits needed to adequately cover a project and more emphasis needs to be placed on meeting coinsurance requirements in an environment where values are increasing," says Stephen Harrell, managing director, Insurance Specialty Group LLC, a division of Totalis Program Underwriters. “Some markets can offer inflation protection coverage enhancements but this should not replace periodic reviews of values and limits throughout the construction process." 

Increasing trade costs must also be accounted for in the builders risk policy. “For example, if a specific subcontracted cost generally runs $200,000 per project, maybe now the costs amount to $250,000—it's a value declaration to the insurance carriers to make sure that a client has the right value," says Grant Chiles, executive vice president and national construction practice leader at Amwins Brokerage. 

“Under-reporting values adds stress to the policy limits and over-reporting leads to wasted premium dollars," Harrell says. “The insureds are typically not well versed in what costs should be included and excluded from a policy rating basis."  

Additionally, “agents that can assist their clients with employee retention and training can help improve the client's risk profile over time," Mee says. “With a less experienced labor force, underwriters will continue to look to use protective safeguards on policies to ensure appropriate controls are in place throughout the construction process." 

Staying on top of the market, which is also facing challenges such as the increase in extreme weather events, is critical for agents and their clients. “You do not want to be a jack of all trades and a master of none,'" says Grant Chiles, executive vice president and national construction practice leader at Amwins Brokerage. “That will allow you to focus more on the specialized insureds." 

“That could be the general contractors, tradesmen, developers or owner developers," he adds. “Knowing your audience, you understand what their critical exposures and coverages are inside and outside." 

Olivia Overman is IA content editor.