The Real Drivers Behind Construction Claims

Guest article by Lucas Hockenberry, Inland Marine – President, Intact Insurance Specialty Solutions; and Molly Miller, Inland Marine – Vice President, Intact Insurance Specialty Solutions 

Industry conversations about construction risk usually focus on emerging threats, such as extreme weather events or supply chain volatility. While those factors certainly influence the broader industry, several of the most significant construction claims continue to stem from far more familiar sources.  

Across projects and asset classes, the same patterns emerge. Losses are frequently driven by exposures that are well understood yet not consistently addressed early enough in the project lifecycle. 

Understanding where these gaps occur and how they translate into claim severity can reduce the overall cost of losses and limit the delays that follow. 

Why Preventable Losses Still Occur  

Claims show that risk mitigation measures aren’t always incorporated into project planning early enough or at the necessary scale. There’s a clear gap between risk awareness and planning efforts. Contractors recognize the exposures, but harm reduction is deferred or omitted entirely. This leaves projects more vulnerable to predictable, preventable losses.  

Budget constraints play a central role. Project owners assume helpful risk-mitigation tools such as leak detection systems or enhanced monitoring are incremental costs. On projects operating with tight margins, these investments can be difficult to justify upfront, even when the potential loss severity is significant. 

This gap between awareness and execution is most visible in water-related incidents. 

Water is the Most Persistent Loss Driver 

Water damage is one of the most frequent and costly drivers of construction claims. While it’s always been a factor, its impact has become more pronounced in recent years, especially as projects grow in complexity and scale. 

In vertical construction, the severity of a water loss is determined by how far it travels. A leak originating on an upper floor can cascade through multiple levels before detection, compounding damage across partially completed systems and materials. A localized issue can quickly escalate into a multi-floor loss event. 

Beyond traditional high-rise residential or commercial buildings, this exposure is also relevant in complex builds, such as data centers, where dense infrastructure and high-value components heighten sensitivity to moisture and contamination. 

Water damage may initiate many losses, but with any claim, the delays that follow can determine severity over time. 

Replacement Timelines Can Drive Claim Severity 

Another significant claims driver is equipment and material replacement. On large or specialized projects, critical components may be sourced internationally or require extended manufacturing timelines. When a loss occurs, replacing the equipment can introduce delays of weeks or even months. 

These delays trigger a cascade of secondary impacts:  

• Extended project timelines. 

• Increased labor and reinstallation costs. 

• Additional financing and overhead expenses. 

• Delay-related coverages and soft costs, such as additional financing costs, extended general conditions, professional fees, or other expenses tied to a prolonged project timeline. 

In highly specialized builds like manufacturing facilities, even a single damaged component can disrupt the broader project schedule. In some cases, sophisticated project teams may be able to reallocate equipment from other active sites to mitigate delays. However, that level of flexibility isn’t universal. 

Although delays play a major role in escalating claims, decisions made before construction is fully underway also shape losses. 

Coverage Timing 

A recurring issue in construction projects is that builders risk coverage may not be placed early enough to account for exposures that exist before vertical construction begins. Some project teams delay placing coverage, viewing earlier phases such as site preparation or foundation work as lower risk. However, exposures are present from the moment materials are delivered or work begins on site. 

Without coverage in place early: 

• Materials stored on site or in transit may not be protected. 

• Early-stage work, such as excavation or site development, may need to be redone at the project’s expense. 

• Labor already invested in the project may not be recoverable following a loss. 

This gap can stem from differing interpretations of when a project officially starts. However, losses occurring in these early phases can be just as disruptive as those later in construction. 

Coverage timing is one example of how early decisions shape claim outcomes. Day-to-day site conditions introduce another layer of exposure.  

Operational Blind Spots 

One of the most consistent vulnerabilities is the period when a site is unoccupied. Many projects operate on fixed schedules, leaving extended windows where no personnel are present. During this time, incidents such as water leaks may go undetected until the following workday. 

Additionally, theft is a persistent concern. Materials and equipment with resale value are highly sought after by bad actors. While high-profile theft trends may fluctuate, the underlying exposure is consistent across projects. 

Routine construction activities can also lead to outsized losses. For example, hot work conducted during roofing or HVAC installation can ignite fires. In some cases, direct fire damage may be limited, but smoke infiltration into building systems can necessitate widespread replacement, significantly increasing the overall claim.  

Recognizing these risks is only one part of a much larger puzzle. How the risks are managed in practice is shaped by who’s responsible by the impact of a loss. 

Questions Around Financial Responsibility 

Project structure can also shape how risk is managed. In many cases, financial responsibility for losses may rest with a party other than the project owner, such as a general contractor. This dynamic can influence how they evaluate and prioritize mitigation investments. 

When responsibility for potential losses is distributed across multiple stakeholders, decisions about risk controls or preventive measures may not always align with the overall project exposure. The way risk is allocated contractually can directly affect how it’s managed in practice. 

For that reason, project stakeholders should work with legal counsel, insurance advisors, and broker partners before work begins to clarify how mitigation responsibilities and loss-related costs will be handled. Clear expectations upfront can help reduce confusion after a loss and ensure risk management decisions reflect the full scope of the project’s exposure. 

Prioritize What Can Be Controlled 

These recurring claim drivers can help you understand where projects are most vulnerable before a loss occurs. That perspective can inform how you discuss project planning and insurance coverage decisions with clients.  

Shift the focus from reacting to losses to recognizing the patterns that drive them. In many cases, the difference between a contained incident and a significant claim comes down to decisions made well before the loss occurs. 

Image provided by Intact Insurance Speciality Solutions

Alicia Ward