The construction industry is directly affected by weather to a certain extent. Decisions related to project plans, material choices, building strategies, and labor and construction timelines are all influenced by weather and climate, and they require risk management solutions.
The increase in frequency and severity of extreme weather events has led to significant economic losses and created a challenging environment that contractors must now navigate as the construction industry continues through 2023.
The Insurance Information Institute defines a natural catastrophe as a natural event that causes $25 million or more in insured property losses, 10 deaths, 50 people injured, and 2,000 filed claims or structures damaged. In 2022 alone, there were 119 natural catastrophes in the U.S., a nearly 23% increase from the prior year.1
How natural disasters affect the construction industry
Natural disasters, such as hurricanes, wildfires and floods, have a profound effect on the construction industry. As these events increase in frequency and severity, it’s critical that construction firms understand the different ways weather can disrupt their operations:
- Labor impacts — Unprecedented labor shortages continue to challenge contractors, and issues securing skilled labor are magnified following weather events. For example, after a flood, general contractors frequently need to bring on subcontractors to help with remediation efforts. However, if the flood impacted multiple businesses in the area, these professionals are likely to be in high demand and short supply. Extreme weather can make it difficult for a contractor’s own workers to get to the job site, leading to recovery delays.
- Material scarcity — Following a natural disaster, there is often an increased need for certain materials. That’s because natural disasters not only devastate residential housing, but commercial property as well, and there is an increase in restoration activity in a condensed timeline. In these instances, many firms are bidding on the same materials, driving up costs.
- Demand surges — A demand surge refers to the increased cost to repair or replace damaged property following a large-scale disaster – when construction firms compete for a limited supply of labor and materials needed for repair projects.2 Local supplies of materials, labor and equipment are typically deployed first to rebuild after natural disasters. When the local supplies are outstripped by demand, prices rise. In situations where a demand surge occurs, the cost of construction can increase by more than 20%.3
- Disruptions and delays — In total, weather delays 45% of construction projects worldwide, costing the construction industry billions of dollars annually.4 Specifically, inclement weather can create unsafe working conditions, damage equipment, delay material deliveries, or block access to a job site — all of which can extend project timelines and increase construction costs. Unforeseen delays can also create contract issues that may balloon to bigger problems, including litigation.
- Damage to equipment and projects— Weather is a threat to a business’s equipment. To protect themselves from losses, many construction businesses have plans in place to shelter their equipment from weather. However, these plans tend to be location- and climate-specific. As weather patterns change and become increasingly severe, more construction firms will find themselves ill-prepared to respond to severe weather and protect their equipment. Just one natural disaster can destroy all of a business’s equipment or an entire project. In some instances, firms may not be able to recover from losses of this scale.
Preparing for natural disasters and extreme weather events5
When it comes to natural disasters and how they impact the construction industry, it’s important for firms to act before a storm strikes. Doing so can help businesses mitigate the effects of natural disasters on their operations.
It’s crucial that firms in the construction industry understand how to prepare for risks and respond to natural disasters and similar events:
- Identify exposures and worst-case scenarios— The earlier a business prepares for extreme weather, the better equipped they will be to respond appropriately. Firms should examine how damage from different weather events (e.g. wildfires, tornados, floods and tropical weather) could affect their operations.
- Create an emergency action plan— Once a contractor has identified their natural disaster exposures, they should take steps to safeguard their employees, tools, equipment and projects. An emergency plan should be created and address all of the steps the firm must take in the event of a natural disaster. Plans should outline employee expectations and assign responsibilities related to its execution. Everyone involved in the business should understand their role when it comes to disaster response. Plans also should be stored in multiple locations where they can be easily accessed by employees and stakeholders. Occupational Health and Safety Administration (OSHA) requires most employers with 10 or more employees to have an action plan in writing.
- Customize emergency plans to individual job sites – Historically, emergency action plans have focused on employee safety. Businesses should also consider the financial impact of weather events and prepare risk management strategies to mitigate weather-driven events down to the individual jobsite. Construction-site severe weather planning is important to coordinate at the management level and implement on the job site through supervisors and contractors. Planning resources should include weather-specific checklists:
- Involve employees and test the plan— When it comes to creating an effective plan, firms should involve employees throughout every step of the process. Employee participation not only helps businesses identify potential exposures they may have otherwise overlooked, but it can also help them gain employee buy-in. Once workers have contributed to the plan’s creation, it’s important to test it. Firms should consider running drills with their workforce and allow them to provide feedback throughout the process.
- Update the plan— Job sites change during a project, and how businesses respond to a disaster may need to change with the job site. Plans should account for the needs of each business, as well as the various equipment and technology they employ at each job site.
- Work with experts to review exposures and secure the proper insurance coverage — No matter how prepared an organization is to deal with natural disasters, losses can still happen. It’s important for contractors to work with their insurance agents before a project to ensure that they have proper insurance and coverage limits in place to address exposures related to natural disasters. Having the proper risk management strategies in place is critical to help reduce the likelihood of claims and costly disruptions.
While the above strategies can help organizations prepare for natural disasters, the truth is that emergency planning is not a one-and-done affair. Emergency action plans should evolve based on weather trends and lessons learned from previous disasters. Construction firms need to be agile and adjust their emergency plan following a natural disaster using post-event insights to support stronger, quicker responses in the future.
- While the construction industry has always been affected by weather, severe weather events and natural disasters have become more frequent and intense.
- This has led to significant economic losses and created a challenging environment that contractors must now navigate.
- It’s important for firms to be proactive and develop customized mitigation methods for each jobsite location to prepare for and respond to extreme weather events.