Reducing Climate-Related Risk: How Monitoring Technologies Improve Insurer Visibility and Building Risk Management
As extreme weather events become more frequent and severe—including the devastating 2024 hurricane season—insurance costs in the construction and commercial real estate (CRE) markets have nearly doubled over the past decade, according to a recent report by Deloitte. This surge is particularly pronounced in regions most vulnerable to climate-related risks, such as California, Florida, and Texas. Such extreme weather events and natural disasters put tremendous pressure on contractors, developers, and insurers. The increased frequency of storms, floods, and other environmental hazards often leads to property damage, disruption, delays, insurance claims and higher premiums, rework, higher construction financing costs, delayed startup, lawsuits and legal fees, and even reputational damage.
Forward-thinking owners, developers, and general contractors are adopting innovative technology solutions to mitigate risk and bend the insurance cost curve. This is particularly true around water damage incidents, a significant threat exacerbated by climate change (wind-driven rain and storm surges breaching water barriers/envelope, flooding, etc.) and water escape (pipe bursts, leaks, etc.).
Taking a proactive approach to technology adoption by de-risking projects upfront in pre-construction is becoming a prerequisite to qualify for lower deductibles across vertical construction projects. Internet of Things (IoT) risk mitigation technology, including smart, cloud-connected sensors and devices, can provide project stakeholders with real-time data, actionable alerts, and automation to mitigate frequency and severity of incidents. In addition, analytics provide critical information for shaping the risk management landscape of future projects, demonstrating an improved risk profile so insureds can position themselves as better risks to cover.
This approach to technology adoption can also add significant value for owner/developers and managers in the operational phase of a building, with elements of IoT risk mitigation technology carrying over from construction into the asset’s post occupancy phase. Doing so can provide ongoing risk mitigation services over the lifetime of the building, helping to mitigate the severity of potential water incidents and reduce the cost of property insurance during operations.
Construction Risk Solutions on the Market
In the face of climate change and extreme weather, smart sensors and IoT-enabled risk controls offer security in a challenging environment. As many geographical areas undergo changes in weather patterns, especially in regions most vulnerable to climate-related risks, there is tremendous pressure on construction stakeholders to build better, safer, and more profitable projects, while tackling rising insurance costs.
Depending on the individual needs of a building project, different IoT monitoring solutions can be adopted on a job site. Cloud-connected sensors significantly reduce the time it takes to discover job site water incidents compared to in-person discovery. Rather than waiting for a worker to step on the job site in the morning, sensors can alert a smartphone within minutes, saving hours of critical time during a potentially damaging situation. In the case of water escape, smart sensors can be paired with IoT-enabled control systems, such as automatic shut-off valves on water supply, to both pinpoint problem areas and isolate water systems immediately during an incident.
Alerts can enable project teams to act in real-time to prevent incidents from occurring in the first place—reducing the frequency of claims and incident severity while helping to keep projects on schedule and budget. Alerts also provide project stakeholders with real-time and historical job site data and analytics. This information is invaluable to insureds, helping inform and improve best practices in their construction risk management and mitigation approach.
Together with brokers, insureds can develop a robust performance tracking system to enhance their risk profile and demonstrate proactive approaches that reduce claim frequency and severity across projects over time. This builds the case for preferential insurance coverage terms, lower deductibles, and premium credits while driving significant savings on individual project policies or Master Builders Risk/property portfolio insurance programs.
IoT Tech in Pre-construction
Before breaking ground on construction, project stakeholders can leverage IoT technology to lower insurance costs and mitigate risks related to water damage when binding a Builders Risk policy. Among the many documents included in an insurance submission package, a Project-Specific IoT Water Mitigation Plan can be valuable leverage for insureds to secure lower deductibles and more favorable coverage terms.
By utilizing pre-construction IoT solutions, you also gain the expertise and knowledge of a technology partner. The right company will provide insurers with upfront visibility on monitoring systems and risk controls, proactively monitoring water sensors, flow meters, and automatic shut-off valves. These solutions protect building systems and critical areas from water damage during construction. Still, the detailed risk mitigation plan in the pre-construction phase will help insureds improve their project risk profile before binding the policy with carriers, ultimately lowering deductibles and the cost of deductible buy-downs by up to 50%.
What’s more, a building project that mitigates water damage risk during construction is better positioned to secure preferential insurance coverage terms during its operational phase, giving underwriters comfort that the risks of underlying water damage, future mold issues, and other problems have been mitigated with respect to future claims.
Conclusion
Building and construction stakeholders face a myriad of challenges and risks from extreme weather events caused by climate change and water escape. As a result, they need to find solutions to reduce risk and improve visibility to protect their job sites, which is where monitoring technologies come into play. Leveraging real-time and historical job site data and analytics via comprehensive monitoring technology platforms gives developers, general contractors, and insurance providers valuable insights into risk incidents for continuous improvement in construction risk management—alerting owners to extreme weather-induced incidents or water escape events before they escalate. Taking proactive steps to mitigate these risks is critical for owners/developers intent on protecting their project margin and bottom line.
Working alongside project teams, technology providers can develop unique plans to properly scope and budget for solutions needed to de-risk a project through every stage of the construction lifecycle, as well as into post occupancy. With a network of forward-thinking brokers and carriers, technology providers can also help secure the best terms and rates on Builders Risk insurance plans by providing underwriters with enhanced visibility through deployed technology solutions. This approach can also pay dividends once a building is completed, and the focus shifts to mitigating operational risk and securing preferential terms on property insurance.
