Why increasing productivity could reduce a contractor's risk profile

04 December 2018

Boost productivity and enjoy more effective construction insurance programmes

How’s business? For main contractors, even if the answer’s a robust, “Never better” chances are there’s scope to improve productivity.

The statement sounds negative, but it’s not. It’s a positive. Because by modernising their processes and improving their performance, contractors could reap greater profits and reduce their construction risk profile simultaneously. And a reduced risk profile brings lower costs when purchasing construction insurance.

The nation in context: How healthy is UK productivity?

There is no easy answer to this question. Figures made available by the Office for National Statistics (ONS) and other bodies can be interpreted in a variety of ways.

Labour productivity grew by 1.4% in between April and June 2018 compared to the equivalent quarter in 2017. This figure reflected higher output growth (1.2%) along with lower job growth (0.9%). The total number of hours worked also declined. This was the seventh consecutive quarter that labour performance had increased, but according to the ONS, it remains below the rate of growth prior to the economic downturn, which averaged about 2%.

In September 2018, however, the Guardian reported that UK manufacturing productivity had fallen, with growth slowing in August 2018 to its lowest level since July 2016, according to a survey of manufacturers. It added that this was due to a mixture of Brexit jitters, a shock fall in exports and the creation of more low skilled jobs since the recession.

How robust is UK construction productivity?

Construction is a big player in the UK. According to the most recent figures, it generated a £370bn turnover for the wider building sector, with £138bn contributed to the nation’s economy. Consistent growth and productivity in construction are crucial to the economic health of the country.

As a sector that, historically, construction has been slow to adopt new processes and technologies, it should come as no surprise that the UK construction industry shares the same ‘could do better’ performance status as the rest of the economy.

There is an efficiency gap compared to other industries. Indeed, the sector remains the least productive in the UK, at more than 20 percentage points below the average output per hour for the whole economy in 2017, reported by the ONS.

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What is the UK construction industry doing to improve productivity?

The scene has been set for improvements, with the sector working with government to improve output. Capital allocation and planning have been improved by initiatives such as the National Infrastructure Delivery Plan 2016-2021 and the National Infrastructure Commission.

In 2017, the government announced the Transforming Infrastructure Performance (TIP) programme. The plan unites the public and private sectors to optimise investment in infrastructure by improving efficiency in project design, build and operation.

A further £420m of public and private money was pledged in July 2018. It will be invested in new construction technology, to speed up house building, create skilled jobs and boost output. The government will contribute £170m alongside £250m of industry investment.

The construction industry announced at the same time that it would offer 25,000 apprenticeships by 2020, to encourage new workers into the sector.

How improved processes affect construction insurance premiums

Technology and processes have improved in leaps and bounds in recent years. Construction companies are able to take advantage of a wealth of new ideas, materials and technologies. Once implemented, they can help contractors improve their efficiency and performance.

Improved efficiency drives increased profits. And it has a positive additional benefit when it comes to construction insurance. Modern processes are frequently safer, resulting in reduced risk profiles, and improved construction insurance programmes.

Delivering more work within a lower cost base makes contractors more competitive. Where construction insurance premiums are “rated” on exposure bases such as turnover or wage roll, greater productivity will deliver more cost effective insurances as more activity is being insured per pound of premium.

To this benefit we can also add the reduced risk profile that comes from modern methods of construction. Increasingly, machines or robots are operating in dangerous environments, reducing the risk of injury to the workforce. Alongside this, the advance of manufacturing in construction is relocating activity from the dynamic but dangerous worksite, to cleaner, warmer, dryer factories where the working conditions encourage improved worker health, safety and product quality.

These positive trends are combating risk and will reduce the incidence of accidents in construction. This is the only meaningful way to reduce insurance costs in the longer term.

Find out more about reducing your construction risk profile

Construction comes with a unique range of risk and insurance issues. For the best deals, contact a specialist construction insurance broker with the market expertise and industry knowledge to tailor policies to suit your business needs.  

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