What risks do HVAC contractors actually need to worry about?

In a dynamic world, companies face dynamic risk. Every company has a unique risk portfolio based on factors like their organizational structure, location, size, employee count and more. Because risk is so unique, it can be helpful to break down a specific industry’s risk into categories. These categories can then serve as a foundation for analyzing a company’s risk across each of the primary exposure areas. The heating, ventilation and air conditioning (HVAC) industry is a great example of a dynamic industry. For starters, it is a massive industry with about 105,000 different companies of all shapes and sizes. From industrial and commercial HVAC companies to small local operations servicing homes and stores in the area, these companies and their worksites look pretty different. However, by breaking down the industry into primary exposure categories — it is much easier to get an understanding of the risk that an HVAC company really faces.

The HVAC Industry

The HVAC industry, as previously mentioned, has a large number of companies. This has resulted in an industry with a high level of competition. If you search for an HVAC company near you, expect to see quite a few results. Another relatively unique characteristic of this industry is its seasonal nature. A bulk of the industry’s business occurs during the high temps of the summer and the coldest months of winter. Business drops off significantly during the months of the year that are more temperate. The HVAC industry also lives at a unique intersection of technological advancement and governmental regulation. The internet of things (IoT) has brought internet connectivity and smart devices into the industry and advancements in technology bring consistent change and innovation. At the same time, governmental regulations continue to change licensing and procedural requirements from commercial and residential HVAC companies. This recipe of dynamically shifting risk may seem daunting. However, HVAC companies can break down their risk across several primary exposure areas in order to understand where they stand:

• Fleet
• Equipment
• Environmental and Regulatory
• Safety and Workers Comp
• Seasonality
• Talent Retention

Fleet Exposure

The nature of HVAC work often necessitates the use of vehicles. Whether it is for the transportation of technicians and equipment to job sites or bringing units back to the shop for repairs, some type of company fleet is usually required. HVAC companies come in different shapes and sizes and this also applies to their fleets. Some companies may employ basic utility vans or pickup trucks, while others retrofit vehicles with storage compartments for electrical components, refrigerants and more. Larger companies, especially in the commercial sector, will likely own and operate their own fleet of vehicles. Smaller companies operating primarily in residential areas may let their employees use their own vehicles for work in place of owning and operating a fleet. Whether an HVAC company utilizes a corporate fleet or lets their employees use their own vehicles, fleet risk is a significant exposure category for any HVAC company. Property and personal damage could result from distracted or drowsy driving, poor maintenance of vehicles, or driver error. There are several strategies to combat fleet risk, from the development of maintenance and safety programs to fleet telematics solutions. Understanding the exposure you face from your owned or unowned fleet requires a risk management partner who can ask the right questions and determine what steps you need to take in order to mitigate your exposure and position your fleet for long term success.

Equipment Exposure

Many contractors face serious exposure when it comes to their equipment. The HVAC industry is no different. Their work requires highly specialized tools for the repair and maintenance of HVAC units: psychrometers, leak detectors, thermal imaging tools, and nitrogen regulators just to name a few. Naturally, these specialized tools come with a price tag. While companies may have their tools and inventory insured against theft or loss, there may be other risks in this area that are less obvious:

Lost Productivity

Some specialized equipment, on top of being expensive, may have a long lead time for replacement or maintenance. This is especially true if you do any work that requires custom machinery or equipment. One company we worked with had a specialized piece of equipment designed by a company in Germany. When it went down, it meant it would be months before they could get the repair team or a replacement shipped to them. If your business relies on your equipment but does not have a replacement plan in place, you could face long periods of downtime and be unable to complete jobs.

Malfunction

Equipment that is improperly maintained can pose a liability that could cost your company more than replacement costs. Imagine your tech goes into the field with a voltmeter that is old in a bit of disrepair. That tech is now at risk of serious injury every time they test electrical components. Add to that the liability of completing a job improperly and creating future hazards. It is important to have a strategy in place to ensure that inventory isn’t just safe from loss, but maintained properly as well

Environmental & Regulatory Exposure

HVAC contractors face regulations and potential environmental hazards consistently. Working in a field that requires the use of insulation, sealants and refrigerants means that as an industry they fall under the strict scrutiny of regulatory bodies such as the EPA. Each state and even local governments have their own licensing and regulation requirements that an HVAC company needs to be aware of as they go about their operations. The risk is real: companies found letting unlicensed employees work on HVAC jobs in any capacity can face fines of $37,500 per employee per day on the job.[1] Another environmental exposure HVAC companies may not be aware of is the way that internal air quality issues are handled by insurance. Many companies have general liability insurance, and assume that if their ventilation systems create issues they will be covered. However, this is often not the case. Since 1985, claims concerning air pollution have often been excluded from general liability coverage, and could require specialized insurance.[2] With regulations from the national, state, and local level consistently changing it will be important to ensure that you stay up to date on changes or find a partner that can guide you through regulation changes and create a strategy to ensure your risk is mitigated.

Safety

Like many contractors, the nature of HVAC work creates ample risk for injury. While workers comp may be a standard part of your insurance, just covering the risk of injury may not be enough. It is important to create a culture of safety throughout your organization and be proactive about safety instead of reacting to incidents after they occur. One example of a risk that is common to the HVAC industry is the fact that employees often work high off the ground. From tools falling on passers-by to the risk of falling to employees themselves, there are several ways to create policies that will reduce your risk. A second major risk to workers within the HVAC industry is the handling of potentially hazardous materials and inhalants. It is common to work with hazardous refrigerants, sealants, insulation and more. Here are several common hazards and the risk they pose:

• Coil Cleaners: can be strong acids, or base, both of which can cause severe injury if skin is exposed to them.
• Sealants: many sealants have semi-toxic fumes which should be applied wearing PPE, and which may require residents to stay out of the area during the curing time.
• Antimicrobial products: often used to prevent or remove fungus, these products are toxic and PPE should be used to prevent unfiltered inhalation.

Without the proper policies in place to ensure your team is consistently using the proper personal protection equipment, and handling and disposing these materials properly, your organization is open to long-term health risk and other liability. Changing your safety culture won’t happen overnight, but it is an important step to lowering the overall risk your company faces. For more information on safety culture change check out our blog post on Safety and how it can position a company for long term success.

Seasonality and Customer Retention

The HVAC industry faces unique challenges due to its seasonal nature. The bulk of business occurs during the summer months when heat overwhelms air conditioning systems or in the winter when cold weather begins to take its toll on heaters. During the temperate months of the year, business tends to fall off. This seasonal nature introduces risks that HVAC companies may not realize. One example of this is the highly competitive nature of the HVAC industry. If customers don’t hear from a company during the off-season, they may not necessarily become return customers when they need work next time. Instead they may just search google and go with the top rated company they see. Customer retention strategies and review gathering could be an impactful way to mitigate the risk of losing customers. There are also operational concerns when it comes to appropriately staffing and managing hours during the times of year that have less business. If overstaffed a company could face decreased profitability, and if understaffed they could fail to meet the needs of their current customers. Seasonal markets exist across a variety of industries. In Australia, a study was conducted on the wine tourism industry which is very seasonal in nature. It indicated that there are several strategies to combat seasonality: special pricing, diversification of services, creating attractive events and promotions, pursuing new demographics, and more. However it also revealed that each industry and each company is unique and will need to think strategically about what steps to take with its operations and marketing to get the best results.

Talent Retention

As with many contracting industries, there is a high demand for talented workers within the HVAC industry. When you combine the required training with the experience gained over years of working jobs, you end up with workers who are not necessarily easy to replace. The industry is also facing a skilled labor shortage, which only compounds the issue.[3] This issue comes to a head with smaller HVAC contractors as the loss of a key employee could mean the inability to complete contracts and the loss of revenue and long-term reputation. This issue is not limited to workers with technical skills. An often overlooked source of risk is with employees who have accumulated knowledge that is vital to the operations of a company: like the person who creates all the contracts or handles the inventory system. If organizational learning isn’t preserved, the loss of one key employee could cripple operations and do substantial damage. Our research has indicated that a culture that retains your talent is a key component of a healthy and successful organization. There are many factors to consider when looking at how to mitigate the risks of lost talent. From attracting talent to keeping competitors from poaching your people, the key is to ensure that you have a strategy in place to retain talent and preserve organizational knowledge.

A Partner in Long-Term Success

The six categories of risk exposure we have outlined here are a starting point, but it is important to remember that every company is unique. Your organization, and its risk portfolio will require honest assessment of the risk you face and some strategic thinking about how to mitigate risk and get the right coverage.

Here at Ledgestone we gather data from across the organizations we work with in order to get a holistic picture of the risk they face in each exposure category. We then work with them to implement a data-driven strategy that will set them up for long-term risk mitigation and success.

We would love to learn more about you, your organization, and how we can use our data-driven approach to help you assess and mitigate the risk you face. Risk today is dynamic and we want to be a dynamic partner. Follow this link to reach out to one of our specialists, we would love to talk to you!

References:

1. Huetter, J. (2021, July 24). ‘Repair U’: Get anyone TOUCHING A/C certified to avoid big EPA fines. Repairer Driven News. https://www.repairerdrivennews.com/2018/08/20/repair-u-get-anyone-touching-a-c-certified-to-avoid-big-epa-fines/.
2. Goodway. (2018). Risk management: How to protect your hvac business. Risk Management: How to Protect Your HVAC Business | Just Venting. https://www.goodway.com/hvac-blog/2012/05/risk-management-how-to-protect-your-hvac-business/.
3. HVAC industry Analysis, trends & predictions for 2019. Dataforma. (2021, July 26). https://www.dataforma.com/common-hvac-industry-challenges/.