The construction industry is experiencing a labor crisis. A combination of retiring skilled workers, fewer young professionals entering the trades, and pandemic-related disruptions have led to a shortage beyond sheer numbers. 

A skilled labor shortage is at the heart of the issue—a gap where the demand for qualified, experienced workers far exceeds supply. This shortage has far-reaching implications, not only for project timelines and budgets but also for the insurance risks faced by contractors.

Did You Know: Nearly 88% of construction firms are struggling to find employees with the right skills to hire. 

Scott Zemberi, director of construction underwriting at Central Insurance, explains how this shortage creates a domino effect of challenges. “The issue of not being able to find labor with the proper skillset inevitably leads to two things: hiring employees who lack the proper skillset or having existing labor attempt to do work outside their qualifications,” Zemberi notes. These scenarios significantly increase the likelihood of claims, from construction defects to workplace injuries.

Below, we examine how the labor shortage is reshaping risk management in construction and what contractors can do to adapt.

Why Is There a Labor Shortage in Construction?

Several key factors contribute to the ongoing labor shortage in construction, and addressing them can feel like an uphill battle. The main drivers include a retiring workforce, increasing demand for skilled labor, and a shrinking pool of qualified workers entering the industry.

The construction industry is struggling to meet the demand for skilled labor, making it harder to address the nation’s 1.5 million home housing shortfall. According to the Home Builders Institute (HBI), the industry needs to hire 723,000 workers annually to bridge this gap.

While there are 8.3 million construction workers in the U.S., including 3.4 million in residential building, hiring rates aren’t keeping pace. Over the past six months, the average number of new residential construction workers added per month was just 5,667—far below what’s needed to match demand.

This growing labor shortage highlights the urgent need for solutions, including stronger recruitment efforts and training programs to develop the skilled workforce necessary to keep construction projects on track.

A Skilled Labor Shortage and Its Consequences

Companies often face difficult decisions when they cannot find workers with the appropriate expertise. In many cases, they must hire underqualified individuals or reassign existing employees to tasks outside their usual skill set. Both approaches increase operational risks and can have far-reaching effects on project outcomes and overall safety.

One critical consequence is the rise in construction defects. Work completed by underqualified laborers is more prone to errors, leading to structural issues, project delays, and costly claims. Defects impact a project’s bottom line and tarnish a contractor’s reputation, making it harder to win future bids.

Another major concern is workplace safety. Inexperienced or improperly trained workers are more likely to be involved in accidents, leading to higher injury claims rates and increasing the burden on Workers’ Compensation systems. The uptick in claims raises costs for individual contractors, contributing to rising insurance premiums across the industry.

Learn More: Examples of Hazards on Construction Sites and How to Build a Safety Culture

The skilled labor shortage isn’t just a workforce issue; it’s a factor that significantly impacts risk management and profitability. 

Addressing the Labor Shortage: Practical Steps for Contractors

For construction businesses, addressing these challenges requires rethinking recruitment, investing in robust training programs, and collaborating with insurers to manage heightened risks effectively.

Below, Zemberi outlines the top three things to focus on as you navigate the construction labor shortage:

1. Training: The Key to Mitigating Risk

Proper training and oversight are essential to combating the risks undertrained workers pose. “Safety and training are two areas where you can never cut corners,” Zemberi emphasizes.

He suggests contractors focus on these measures:

• Employ a safety director or risk manager: These roles are critical for developing and implementing safety and training protocols.
• Leverage loss control services: Many insurance carriers offer dedicated personnel to help contractors mitigate risks through tailored safety programs. Specialists could scope out the job site for safety concerns or OSHA violations and provide support by training employees. Learn more about the benefits of a loss control specialist.

By focusing on training, contractors can protect their workforce and bottom line. Investing in risk management and loss control programs is a proactive way to strengthen operations and maintain long-term success in the industry.

Learn More: Loss Control Tips for Construction Companies

2. Insurance Coverage Gaps: Are You Protected?

The labor shortage doesn’t just impact risks; it also highlights critical gaps in traditional insurance coverage. For example:

• Project delays and quality concerns: These issues often result from labor shortages but fall outside the scope of general liability policies.
• Faulty workmanship claims: General liability policies typically exclude coverage for the cost of correcting defective work.

“Claims as a result of a project being delayed or coverage for the faulty work itself are neither bodily injury nor property damage,” Zemberi explains. To bridge these gaps, contractors should consider specialized products like professional liability and contractors errors & omissions coverage.

Learn More: Contractors E&O in Action

3. Technology for Loss Control

While the labor shortage poses immediate challenges, long-term solutions are emerging. Technology and innovation are transforming the construction industry, offering tools to reduce reliance on unskilled labor and mitigate risks.

• Artificial Intelligence (AI) and Virtual Reality (VR): AI is revolutionizing training and safety protocols, while VR allows workers to practice skills in a controlled, risk-free environment. VR is also increasingly used to identify hazardous job site conditions before accidents occur, helping contractors proactively address risks.
• Automation: Modern equipment equipped with automation technology can perform repetitive or high-risk tasks, alleviating the pressure caused by labor shortages. Machinery that can operate with minimal human input streamlines processes and reduces the risk of injury.

As technology continues to evolve, it will play a crucial role in bridging the gap left by the labor shortage.

Choosing a Carrier that Supports You Through a Construction Labor Shortage

When choosing an insurance carrier, look for qualities such as industry expertise, responsive claims handling, and tailored coverage options that address the unique construction challenges. A good carrier doesn’t just protect your business—they work alongside you to proactively mitigate risks, offering guidance and resources that help you adapt to an evolving industry.

At Central Insurance, we pride ourselves on being more than a provider—we’re a partner. We understand the pressures construction businesses face during labor shortages, from increased project risks to shifting operational demands. That’s why we offer comprehensive solutions, contractor-specific endorsements, extensive internal expertise, and access to experienced loss control specialists who can provide recommendations.

When you choose Central Insurance, you gain a partner who values your success as much as you do. Contact an independent agent today to discuss how Central can help safeguard your construction business through any labor market conditions.