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Real Estate Development

The Strength of the Surety Market

The Strength of the Surety Market

It's not too complex. Naturally, the power of the surety market strongly correlates with the success of the construction industry. The stats show that when the construction industry is down – so are the surety markets.

With over $5.5 billion in 2008, the construction markets took a dive following the recession. Once the economy improved, the markets rebounded, and construction activity increased to over $5.5 billion once again in 2015. Looking at statistics isn't the only way to know the markets have bounced back.

According to Susan Hecker, director of national contract surety and area executive vice president, Arthur J. Gallagher & Co:

"One way I measure what's going on in the construction industry is how many tower cranes I can count on my drive to work every day. Over the past few years in the San Francisco area, it has gone from a handful to more than 50."


Understanding the Upswing

Private projects are thriving, and more bonds have been issues on these plans as of late. Most see this as a great thing for sureties, as lending institutions have started to require bonds for financing projects in the private sector.

However, spending on public projects has not found the same level of bounce-back. State and local governments don't have the funding that they did before the recession. While there is still a demand for projects, the government has to get creative in finding ways to meet their needs.

Enter P3s. One creative manner many government entities are working on is public-private partnerships or P3s. While the name is self-explanatory, the surety side has been working to offer bonds that fill this ever-growing market. Typically, a P3s bond offering will need to be more liquid.


Is All Growth Good?

While the upswing in the construction and bonding demand is a good thing, there are still concerns. Many worry about the availability of high-skilled employees and workers. It can be hard to find a qualified workforce for many construction companies these days.

The lack of skilled workers comes from a few factors. First, baby boomers are retiring. This leaves a lot of knowledge at the trade level off the table. There is a void to fill. And while the unemployment rate for construction workers is lower than it has been in the last decade, the available labor force has been strained. According to Ed Titus, senior vice president of surety for Philadelphia Insurance Cos:

“We see the Texas, California, and Florida construction markets struggling with not having enough of an available trained, skilled workforce for contractors to start bidding on new projects."


Cause & Effect

With a lack of skilled labor, most sureties have been keeping a close eye on the industry. Many have found a rise in claims. A lack of workers makes it difficult to finish on time. Projects that take longer often find more damages, too.

Plus, the flow of money slows down. Often, owners can't pay sub-trades until things get completed. When this happens, a claim can be triggered. Bonds often guarantee labor providers and suppliers are paid. If the flow of cash is slow, then it comes back to the claims.


Energy Sector Issues

Construction isn't the only industry sureties work heavily in. The energy sector has been problematic for the surety markets lately, too. Bankruptcy in the energy sector has become all too familiar.

The largest surety loss of all time was an energy company, Enron. Thus, when sureties see a number of energy companies file for bankruptcy, there's a legitimate call for concern.


Understanding the Surety Marketplace

With the construction industry coming up, sureties are looking to expand their business. Professionals in the space are hungry for new business. But with pricing becoming hyper-competitive, one can expect the industry to remain active and engaged – if profitable results are to continue. 

For more information on bonds and surety contact Skyline Risk Management, Inc. at (718) 267-6600. 

Trends for 2017: Workers' Comp Edition

Trends for 2017: Workers' Comp Edition

Some brokers struggle to help clients these days. It's not easy. Rising health care costs seem to be an inevitable part of doing business today. While the skyrocketing costs cannot be ignored, there are ways to decrease risk and manage premiums in the wide world of workers' comp.


Workers' Comp Trends in 2017

As we enter 2017, changes and trends in the workers' comp world are coming. Brokers may have niche opportunities to help businesses and clients by keeping workers' comp costs in line.

Here are six workers' comp trends to pay attention to:

1. Rising Premiums

High claims typically lead to high premiums. This is the insurance industry in a nutshell. That's the bad news, but it gets worse. Certain insurance companies have seen more claims, longer breaks from work, and higher dollar amounts being claimed. That's a recipe for high premiums. And many predict these premiums will continue to go up due to increasing costs for prescription drugs and an aging workforce. If change is to happen quickly, most brokers note it'll come from within an organization – not to the system.


2. Bad Management

One way companies may control workers' comp costs is through better management of pharmaceutical benefits. Opioid use has continued to rise in the United States. As such, many employers require workers' comp claims using opioids to have a weaning off strategy at the start. Another way to manage benefits is limiting where employees can get pharmaceuticals. Getting drugs from the physician's office typically costs more than at an off-site pharmacy.


3. Plentiful Partnerships

Certain workers' comp programs have developed relationships with facilities that specialize in work-related injuries specific to their industry. While requiring workers' comp claimants to choose a particular occupational medicine clinic is barred, a recommendation is legal. Brokers can help make an introduction in these scenarios.


4. More Technology

Innovations in the medical field incorporate technology to give patients options. Telemedicine is one such trend. Instead of visiting a doctor's office, a patient can call in on a smartphone or iPad at any time during the day or night. This is especially useful for people who work nights and mornings. Other programs have incorporated a hotline that connects injured employees to a health care professional immediately.


5. Cultural Focus

A culture of getting back to work is essential to ensure the success of a workers' comp program. Employees who want to get healthy and get back to work can save a company a lot of money. One way to potentially get employees back faster is through support. Most companies don't contact employees while they're off on a workers' comp claim. A phone call or card from a supervisor could help an employee recover mentally and physically.

Many were surprised to learn that over 80% of a workers' comp program costs go towards 5% of the claims. This means employees away from the job for a long time eat up more costs than anything else. Getting these people back on the job on schedule can be significant for workers' comp programs.


6. Keep Things Safe

While workers' comp programs are in place for a reason, the easiest way to potentially control costs is through a safety program at the workplace. Many have found the costs of incorporating more safety programs and measures to be minimal compared to the cost of workers' comp when an employee gets injured.

Certain companies have found a large financial incentive to focusing on safety and doing things the correct way. A broker can play a significant role in helping companies manage workers' comp costs by focusing on safety. 


For more information regarding workers compensation contact Skyline Risk Management, Inc. at (718) 267-6600. 

It Finally Happened! 421-A Gets Extended

It Finally Happened! 421-A Gets Extended

It took months upon months. There was a lot of hand-wringing. Developers threatend to stop a number of multifamily developments if there was no tax abatement in place.

Luckily, that disaster was avoided. Finally, the Real Estate Board of New York and the Building and Construction Trades Council of Greater New York came to an agreement. The extension of the lapsed 421-A program that offers tax exemption has been extended.


What It Means?

So what was all the fuss about? The 421-A extension means that eligible buildings in Manhattan must pay an average hourly wage of at least $60 – including all wages and benefits. Other buildings in Queens and Brooklyn are required to pay at least $45 per hour when all wages and benefits are taken into account.

The 421-A extension obligations only apply to buildings in certain areas that meet specific criteria. Only buildings in Manhattan south of 96th street qualify. In Brooklyn and Queens, only buildings in Community Boards 1 and 2 around one mile from the closest waterfront bulkhead qualify.

As well, only buildings with over 300 rental units are obligated to the pay stipulations. Buildings that have 50% or more of affordable housing units are also excluded from the obligations in 421-A.

If a project began before the effective date of the new 421-A agreement, then the project can choose to opt-in to the program if they want to. Of course, these projects must meet eligibility criteria, too.


Understanding the Benefits of 421-A

While the details are important, the reasoning behind the agreement shouldn't be overlooked. Many important people are thrilled with the agreement, especially regarding benefits for low-income New Yorkers. Governor Andrew Cuomo is one of them:

"The deal reached today between these parties provides more affordability for tenants and fairer wages for workers than under the original proposal. While I would prefer even more affordability in the 421-a program, this agreement marks a major step forward for New Yorkers.

The agreement extends affordability for projects created with 421-a for an additional five years–bringing affordability for these units to 40 years. It also allows lower-income individuals to qualify as it lowers the percentage of area median income needed to apply.

Additionally, this agreement rightly delivers fair wages for working men and women – providing a rate of $60 per hour in Manhattan and $45 for certain projects in Brooklyn and Queens. Most importantly until this agreement is finalized, the State Legislature has refused to release $2 billion in state affordable housing funds. I urge the Legislature to come back to Albany to pass desperately needed affordable housing and to sign the MOU to release these funds. We simply cannot allow the lack of resolution to stall affordable housing production for years to come. There is no excuse not to act."


More Info on 421-A

Governor Andrew Cuomo is excited about 421-A for a number of reasons, including:

1. Traditional Worker Standards: Many applaud the amendment for continuing to give construction workers the rights they deserve in New York City. The standards and benefits provided in 421-A go a long way towards keeping workers taken care of.

2. Affordable Housing: The 421-A amendment allows for the development of affordable housing for low-income individuals. This is critical in a city like New York City, which features some of the most expensive housing costs in the world. The 421-A program allows buildings complying with the regulations to stay in the program for 35 years with a property tax exemption. This incentive should keep units with income limitations in the program.


Finally Done!

Overall, the passing of 421-A is set to benefit a number of New Yorkers. The amendment ensures quality wages and benefits for construction workers. It also ensures affordable housing units are created in some of New York's most popular neighborhoods and areas. 

For more information about NYC insurance laws contact Skyline Risk Management, Inc. at (718) 267-6600.

New York Labor Law

New York Labor Law

  • What it means for property owners, their agents, managers and commercial tenants.
  • What you need to know to protect your assets.
  • How GNY can help.

New York Labor Law:

New York State’s Labor Law (NYLL) represents an onerous burden for property owners and managing agents in New York, making them financially liable for virtually any work-related accident on their premises. So as building owners and managing agents routinely hire contractors to do work on their properties, they routinely face huge liability exposures.
To insulate themselves from high-value lawsuits brought by injured workers, building owners and managing agents should enter into hold harmless and indemnification agreements, backed up by the contractors’ own insurance, which transfers liability for such injuries from themselves to the contractors and subcontractors whose negligence caused the injuries. Failure to do so can cost building owners millions of dollars.

GNY can help navigate this challenging landscape.


Three Key Sections:

1. Section 200 requires building owners and managing agents to provide workers with safe places to work.

2. Section 241(6) makes building owners strictly and vicariously liable for worker injuries at their buildings if improper or inadequate safety equipment causes a worker’s injury. Damages from resulting lawsuits can be reduced or eliminated if building owners can show that the injured worker was partially or fully responsible for his injuries.

3. Section 240(1), commonly known as the Scaffold Law, makes the building owners as well as their contractors and project managers “absolutely liable” for all gravity-related construction accidents at their buildings, subject to a few hard-to-prove exceptions. The building owner is liable even if it did not hire the injured worker or his employer, even if it did not know that the worker or his employer was working at the building, and even if the worker is partially or fully responsible for his own injuries. These lawsuits often result in summary judgment for the plaintiff on the issue of liability, leaving only the damages portion of the lawsuit to be tried against the building owner and property manager. Because these lawsuits often present serious injuries, verdicts in such cases can be quite high.

  • A good safety record will not protect building owners, managing agents and construction contractors from liability under any of these statutes. In addition, litigation can become a part of your loss history, which may drive up your insurance rates. Don’t let this happen to you.

  • GNY Recommends The Following Steps To Protect Your Business And Assets Under These Statutes: 

1. KNOW YOUR CONTRACTOR:

  • Verify the contractor is properly licensed, insured and experienced in the type of work it is being hired to perform.
  • Verify whether the general contractor uses subcontractors. If the general contractor uses subcontractors, find out how it screens its subcontractors and confirm with your contractors that its subcontractors are properly insured.
  • Verify there are written agreements in place between the building owner and its general contractor, as well as between the general contractor and its subcontractors, with proper indemnification and insurance-procurement clauses. The contractor and subcontractors should name the building owner and the managing agent as additional insureds on their liability policies on a primary and non-contributory basis.
  • Verify before entering into contracts with your contractors that the contracts make the contractors responsible for worksite safety and for having a safety-and-employee training program in place.
  • Verify contractors have obtained all necessary permits before they begin their work.
  • Verify your contractors and their subcontractors do not have a history of Occupational Safety and Health Administration Law violations.

2. USE RISK TRANSFER TACTICS:

Using written contracts to transfer the risk of liability and damages from you to your contractors can protect you from claims of serious injury and potentially large damage awards. The following clauses have proven successful:

  • Hold Harmless and Indemnification Agreements

Every contract between you and your general contractors, as well every contract between your general contractors and their subcontractors, must contain a clause requiring the general contractors and their subcontractors to “defend,” “indemnify,” and “hold harmless” the building owner and the managing agent from liability, loss or other damages that arise because of any of the contractors’ negligence. It is important that this agreement be properly worded, dated and executed before the work begins.

  • Insurance Procurement Requirement

Contractors and their subcontractors must agree to add building owners and their managing agents as additional insureds to their insurance policies for any liability arising out of their work. The limits of these policies should be at least $1 million for a primary commercial general liability (CGL) policy and $5 million for an umbrella policy. Also, the additional insured coverage should be written on a “primary and non-contributory basis.”

  • Insurance Requirements and Certificates of Insurance

While it is common practice to request a Certificate of Insurance (COI) from contractors and subcontractors, the certificate alone does not confer or prove the existence of additional-insured coverage on your behalf. A proven “best practice” is to require your contractors to submit a copy of their primary liability and umbrella policies for review by an insurance professional. All COI’s and insurance policies must be provided to the building owner or managing agent before the work begins. The COI and insurance policies should also show that the building owner and managing agent are named on the primary and umbrella policies as additional insureds.

GNY will review your contracts with your contractor or subcontractors free of charge. Simply ask your broker to forward the contracts and insurance policies to your GNY underwriter.


SPECIAL CONSIDERATIONS FOR ...

 

COMMERCIAL PROPERTY OWNERS:


NYLL’s unfavorable liability provisions can adversely affect the owners of commercial buildings when tenants hire contractors to perform construction, alteration, repair or maintenance in their units, and those tenants are inadequately insured or indemnified by the contractors they hire.

As part of their commercial leases with tenants, building owners should use the same strategies suggested above for the transfer of risk from themselves to their contractors:

  • Obtain copies of the CGL and umbrella policies and COI’s from all commercial tenants and their contractors.
  • Set up a notification system alerting you to renewal dates for these policies.
  • Make sure tenants have sufficient CGL and umbrella policy limits.
  • Require tenants and their contractors to name the building owner and the managing agent as additional insureds on their CGL policies on a primary and non-contributory basis.
  • Require tenants to sign agreements indemnifying and holding the building owner and managing agent harmless for liability arising out any of the tenants’ work in their units.
  • Review your leases with an attorney to ensure these clauses have been included in the leases.

GNY will review the relevant contractual clauses and policy provisions for you free of charge. Simply ask your broker to forward the contracts and insurance policies to your GNY underwriter.


RESIDENTIAL CO-OPS

To protect the board, the shareholders and the co-op corporation, the same risk-transfer strategies mentioned above should be in place whenever a shareholder in a co-op has work done in his unit. This work ought to be done under an Alteration Agreement, which should require the shareholder’s contractors to indemnify and hold harmless the shareholder, the co-op and the managing agent, and to name these entities as additional insureds on the contractors’ general-liability policies on a “primary and non-contributory” basis.

The Alteration Agreement should also require the shareholder to indemnify the co-op and the managing agent and to have proper liability insurance in place to cover these exposures. The co-op must mandate, preferably in the lease agreement, that contractors cannot begin work in a unit until the shareholder submits to the co-op and the co-op approves all of these construction contracts and insurance policies.

Insurance companies insuring contractors have come up with broad exclusions and limitations designed to protect them from having to defend and indemnify you as additional insureds under their policies. This is very unfair to the co-op. By showing you what to look for in these policies, GNY can help protect you and your finances.

GNY will review the relevant contractual clauses and policy provisions for you free of charge. Simply ask your broker to forward the contracts and insurance policies to your GNY underwriter.

GNY can also supply you with an exemplar of an “Alteration Agreement” incorporating these conditions for the co-op, the shareholder and the contractors to sign.

Sureties Still a Construction Asset

Sureties Still a Construction Asset

The construction industry has been an ever-changing environment over the last decade or so because it has had to adapt to the rise and fall of the marketDemand has changed, requirements have changed, and desires have changed. Will all these changes in play, it becomes a fair question as to whether sureties are still an important part of the business. The answer to that question is a resounding yes.  With the changes to the construction industry, risks have increased if anything, making sureties a more important part of business than ever.

The primary purpose of a surety is to financially protect the obligee if the principal does not fulfill their contractual obligations. With the changes in the market, there are new reasons why the need for this promise is so vital for contractors.


Tougher Competition

Increased competition in the marketplace presents more than one factor to the changing construction climate.  Everyone in America knows that during the recession, construction was one of the hardest hit industries. Although still recovering, the industry has yet to see conditions equivalent to what they were before the fall of the market.  Even though the market has not fully rebounded, demands of owners have changed and become surprisingly stringent.  More responsibility than ever falls on the heads of the contractors from the expectation to finish uncompleted designs to the need to lower overhead costs significantly just to be able to stay in the market. With increased responsibility comes an increased opportunity for risk.


Enormous Risk

The likelihood of subcontractor default is a scary, but relevant factor in construction. A recent risk study conducted by the Associated General Contractors of America (AGC of America) places the risk of subcontractor default as one of the three highest risks in the construction industries.  Other major risks include highly-detailed contract language and a shortage in skilled laborers. The fact that the very purpose of a surety for a contractor is to protect against subcontractor default and statistics are showing that default is still a huge risk, is alone enough to warrant a surety.

It seems as though subcontractors are not adjusting to the new industry standards in the same manner that others in construction have been forced to.  Maintaining the high overhead or pre-recession times is not going to cut it in today's industry. As an unfortunate side effect, this takes many who may have proven their worth as a subcontractor out of business as they fail to match the bids of others who have adjusted.  The fact that experienced subcontractors are losing bids links to the other risk factor of a lack of skilled laborers. With the shortage, the workload for those who are skilled is increased and falling behind on that workload is a major contributor to the trend of subcontractor default.


Surety Benefits

A surety, then, becomes a great way to combat these risk factors.  Not only does a surety guarantee that if the subcontractor falls behind and fails to live up to their promise, the financial institution will financially compensate you but it also serves a wonderful second purpose. To be guaranteed a surety, the subcontractor must live up to the scrutiny of the bank or lender.  By undergoing this process, contractors can be more assured that the subcontractor they hire is reliable.

Contractors are in many ways in a more precarious position than they were ten years ago with more liability risks being tossed to them every day. However, the risks are manageable. With proper management of these risks, contractors can know that they are protecting their business. One of the most important ways of doing that is a surety, and it is clear that now more than ever not only it is important, it is necessary.

For more information contact Skyline Risk Management, Inc. at (718) 267-6600