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The Edge of Risk Podcast by IRMI
Weather-Proofing Construction: Unlocking the Power of Parametric Insurance
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Welcome to the Edge of Risk podcast. I'm Joel Applebaum, the Chief Content Officer for ermi. Today's episode is Weatherproofing Construction Unlocking the Power of Parametric Insurance. And I'm especially excited because our guest, Rose hall isn't just a smart industry voice. She's someone I would consider a friend. Rose is the founder and CEO of RH Business Ventures. And in this conversation she breaks down how non catastrophic parametric weather insurance can help contractors and project owners manage climate risk that traditional policies don't touch. It's practical, eye opening and very relevant to what's happening on job sites right now. This was originally presented as a snap Talk at the 2025 ERMI Construction Risk Conference. And it's well worth your time. If you're involved in construction risk, project finance or insurance innovation. You want to give this snap talk a listen.
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Hi everybody, I'm Rose Hall. I have my own consulting practice, but I've spent my entire career in construction and construction risk. I started at Turner Construction back when I was, well, not, let's not say how many years ago, all the way up through the field doing project management type stuff and then four years in risk management at Turner, did some expert witness work for a few years and then I spent nine years at Axxcel, most recently as head of innovation for construction. So my jam is all about how to innovate risk differently than we have before. And I think that now's the right time for this, especially as we're talking about weather today, right? It's raining outside. Anybody going back and forth to the hotels, it's like, do we have umbrellas? I don't know, I feel like I need to get one. Weather does not look the same as it did before. I think we all know that the new reality is climate is changing. Regardless of your political beliefs. That doesn't really stop the climate from changing. And we need to think about risks differently than we have before and especially risk on construction sites. So the problem with climate change and construction sites is that currently the traditional insurance mechanisms that we have to protect ourselves against delays, financial exposure and worker exposure require property damage in order to kick in, right? If you have a storm, you have some property damage, you builders risk kicks in great, may cover some delays. If you have a sub walk off the site, you have recompense in the SDI policy sometimes for your delays. But those are really the only two places where you get recompense for delays. And sometimes the owner will give you a couple of minutes back if you've got some weather, but by and large, policies are getting more expensive and insurers are putting additional restrictions on builders. Risk is starting to move toward a percentage based deductible rather than an absolute deductible. And we all know most insurance policies take a claim process. The parametric aspect of this is what I'm going to talk about today, which adds a layer of financial protection and another risk transfer mechanism for the construction industry that we have not been using yet. And I'd like to present the fact that this is an opportunity for another way to manage risk. And it's not new. You've been managing this weather risk the entire time you've been managing construction projects. You've just been eating the risk. And the way it shows up is if you have a weather related risk and it's a big storm and you've got property damage, your builder's risk will kick in. So that'll give you a little bit of freak and pence on your financial exposure. But construction delays aren't really covered by nature. Why? Because it's the general contractor's responsibility. Right. I was talking to one GC and he said, I said, how do you deal with weather related delays? And he says, well, we just eat it. We're just expected to eat it. We're expected to figure it out. But what happens is you end up crashing the schedule, which costs money, costs time, may have liquidated damages. And this is the part I think is really missed about scheduled delays in construction. It puts workers at risk in a lot of different ways. Number one, everybody knows when you work harder and faster, more workers comp claims show up. That's just a fact. But in the event of adverse weather, there is a strong incentive to keep working. If it's too windy to run the crane but you're worried about losing that entire day, you might go, I don't know, maybe we can pick between gusts. Between gusts, Are you kidding me? A friend of mine actually heard that on a job site. He's like, what are you doing? It's like 35 mile an hour winds. And the guy's like, I'm just picking between gusts. And he goes, shut it down. You've got heat protocols, right? Everybody knows it's getting a little hotter everywhere these days. It's getting a little rainier in places. It's usually not rainy. It's getting a little frostier in places. It's usually not frosty. When you have workers working in icy conditions, you have heat protocols. But that slows productivity Right. Every time you take 15 minutes out of every hour to feed, water and shade your workers, as you should, you're losing productivity. Right, right. And the temptation is to say, well, it's going to be 97 degrees today. That's not that much hotter than 95. We can keep working. When in fact, that's putting workers at risk. Oh, and then the last piece is, you know, your project delays. I put it in there because this whole thing is about project delays. But really that is like the Pandora's box. You know, it's like that's going to cost you money, that's going to cost you worker safety, that's going to cost you reputation. It's your owners as you're thinking about, you know, you may pay the LDs, you may say, you know what, we'll go a week over, we'll pay the lds. That's a risk we're willing to take, but that owner's gonna remove. So there's a lot of unspoken consequential damages. And I use that lowercase consequential to weather related delays. And it doesn't have to be a big storm. Talk about that in a minute. There's a creeping risk here with weather that I think everybody is. It's like the frog and the boiling water, you know, not everybody's really noticing that it's happening, but it's happening very slowly. And we're all taking this on without knowing it. We've all retained this risk as contractors and insurers, but we're not really identifying it that way. Parametric insurance is something that everyone I've talked to about parametric in the last couple of months has said like, oh, yeah, I looked at that about five years ago. It was too expensive and I couldn't figure out the use cases for it. So we really didn't. Does anybody feel that way about parametric? Does anybody know what parametric is? Okay, cool. So, quick primer on parametric insurance. You adjust the claim before it happens. So parametric means you are defining a parameter at which you will get paid out. So there's no claims adjustment. It is strictly this happens, then you get paid. Example, it hits 95 degrees three days in a row on your job site. Payment happens instantly. Why? It's a cash infusion to the project to keep it running in the event of whatever you picked. Rain, wind, heat, snow, ice, whatever weather parameter you choose and whatever threshold you choose. Kind of like choose your own adventure. You want like half an inch of rain and 95 degrees? Or do you want this and that, or this or that. If you think of it in Excel terms, it's like if this, then that count one, right? But think about all of your projects built together and you're trying to count all these different parameters in all these different places. So what this does is when you have a handful of days of rain and your whole job site's a mud hole, but you have absolutely no property damage, nothing's damaged, you're just delayed. You have a week's worth of high winds and you can't run the crane, you're just delayed. Send everybody home. You have a snowstorm and you shut down for one day, but then it's icy for a week and a half. Do you work? Do you not work? There's a strong incentive to work if you know you're going to lose money, lose time, lose reputation. And what a parametric policy can do is define beforehand what happens when that weather threshold hits. And then you get a payment, a cash infusion to the project, and you can use that to offset the delay, or you can bank it as a deductible indemnity fund. You can hold that over here for later in case you do have a storm, and it'll help you offset your bill's risk deductible. So in simple terms, and it seems like a very complicated slide, but you're defining a pre agreed payout when a specific measurable weather event happens. And you get to pick that weather event and you get to pick that payout. So you evaluate the weather trends on the project that you're working on. You decide what your parameters are you as the insurer. So the project location to parallel the covers that heat, snow, wind, rain, cold. You decide the index, the unit of loss. Do you want to get paid for how many hours you're out of work, how many days you're out of work. You can exclude weekends. You pick all of this. Pick the trigger, 90 degrees, an inch of snow, whatever it is, you pick. How much do you think that's worth? Hey, I want $100,000 a day. I mean, if you pick 5 million bucks a day, you're premium's probably going to be pretty high. But you want to look at your job and you want to look at what it's going to cost to be out of work for one day and want to pick a number that's commensurate with that. And then you pick your attachment point. Your deductible on a parametric policy is days. So if the owner gives you 10 days already in the contract, you start your policy at say 10 days or maybe 12 days if you want to take two days of risk. Right. So once you hit that deductible of time, you get a cash infusion to the project, keeps it rolling. You pick your risk layer, right? That's like your okay, I got 10 days, I'm going to buy 10 days, excess of 10 days and then it caps out and then you pick your risk period, your time. So this is like five or ten parameters that you choose and then you bind the policy. And as soon as that thing happens, you don't have to report the claim. It's automatically paid out to the job and it's validated by third party data. So there's no arguing over whether or not it hit 95 degrees on your job site. Examples for this excessive rain. 10 days of rain and you shut the job down because you can't work in the rain. But then after that you've got to clean up all the mud. You've got to, you know, suppose you're in excavation phase, right? You don't want people slipping. You've got to bring in like mesh and you've got to dewater the site. And none of that is property damage. So no other policy is going to kick in for that. Extreme heat we talked about. Extreme cold, high winds prevents you from running the crane. Renewable energy construction. If you're going to build a wind farm, chances are you're building it where it's windy. Yeah. So building that wind farm is probably going to be a problem at some point in time. It's going to be maybe a little too windy to run the construction. Delayed seasons. We're seeing cold way into the summer in some places that we haven't seen before and hot way into the fall that we haven't seen before. We talked about using that cash infusion however you like. You can fund expediting the project. You put another crane on the project, you can just pay everybody to go home so they're safe. You can bank it and use it as a deductible indemnity fund. And as another off label, we call these off label uses, you can say to the owner, you know what, I don't need any weather days and just buy insurance for it. Right. And maybe your bid will be a little bit more competitive because of that. So there's a variety of ways that this product, I think this product doesn't, it doesn't replace anything that you're currently doing from a risk management perspective. But what it does is address today's risks in weather on a construction site that we're currently beating as an industry that are going to continue to get worse because of climate change. And that's okay. This is what we do in construction, right? We take on a tremendous amount of risk and we're proud to do that because we manage risk in an incredibly sophisticated way. This is another tool in that toolbox I think is going to be really, really valuable. And for me as a, you know, a risk manager in construction and really focused on innovation, I think this is a really innovative way to manage our risk going forward. It fills coverage gaps that other policies leave behind that are becoming critical to job site. It's a fast payout. You get clarity and transparency from your parametric insurer. You know exactly what's going to happen. You know you can predict that. And in fact you can use the analytics from the weather to decide whether or not you want to buy a parametric policy. You take a look at the analytics from weather data for the last, you know, 75 years and you go, you know what? It's, it usually doesn't pop over this amount. And then that helps you decide what parameters to choose when you get to choose your own adventure picking your parametric policy. My favorite part about this, and I think the most underrated part of parametric insurance is the injury prevention through design. Removing the incentive to continue to work under negative conditions really protects worker safety. And I think that that's just not talked about enough. Weather is just not about schedule. It's about humans as well. It gets customized and flex and choose your own flexible policy. And of course you can use the funds however you like. So in short, parametric insurance for construction, protecting us against weather risks that are becoming more and more prevalent as climate changes and considering other alternative and innovative ways to manage your risk on construction sites. Keep our industry profitable, keep our workers safe, and allow us to continue to build the places that we work, live and play.
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Thank you for listening to the Edge of Risk podcast. If you enjoyed this Snap Talk, I encourage you to go to ermi.com to check out the on demand sessions featuring full 60 to 90 minute sessions recorded from the 2025 Construction Risk Conference in Indianapolis. Registration for the 2026 Construction Risk Conference is just around the corner. Make sure you have October 25th through the 29th of 2026 reserved on your calendar and also sign up on army.com to be notified when registration opens in order to take part in the early registration discount. Special bonus just for you Listening. Thanks for your time today. And until next time, thanks for listen.