Construction and Engineering

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From modern offsite methods of manufacture to harder rates, we offer our international experts’ predictions on the opportunities and challenges that the construction and engineering market may face in the coming year and beyond.

Construction and Engineering predictions
#1 Modern offsite methods - are they developing development?

Modern offsite methods of manufacture have been undergoing a renaissance. While “pre-fabricated” construction has long since existed, it is now said to be more technically precise and new investment initiatives are arriving. In November 2017 the Government announced a “presumption in favour of offsite”  tenders, with the Department for Education having committed to procuring 22 such contracts in the past year.  Laing O’Rourke has recently opened a £150m offsite factory at the Explore Industrial Park while venture capitalists, like Goldman Sachs and TDR Capital, are looking to propel the sector forward. Touted as part of the answer to solving the housing crises, the further impact of offsite remains to be seen. Insurers will again need to revisit the suite of products they write for the sector - with more of the risk situated away from site (such as delay, insolvency and quality) and the past known issues (like defects, poor workmanship and skills shortages) still remaining a key focus. 

#2 Hard reign? Macro changes in construction insurance?

A generation of global construction contractors and professionals have benefitted from long established soft insurance market rates. However, the global commercial environment may now spawn a period where harder rates may reign – at least in some classes. A wave of significant construction professional indemnity claims and project works losses following natural catastrophes (such as hurricanes Harvey, Irma and Maria) are changing the sector. Architects, engineers and design and build contractors are all facing premium rate hikes, while many construction all risk subscribers have left the market, reducing the previous over-capacity. Rate increases, tighter underwriting and more onerous insurance terms may prevail for a while. The additional costs will affect the bottom line for many construction and development businesses, bad news for them, in a sector straining under the weight of Brexit, investment downturn, skills shortages and increased costs.

#3 An Australian Perspective: Climate change exposes infrastructure assets to heightened risks and makes resilience planning critical

Insurers will need to consider climate change impact on ageing and new infrastructure, as many assets are vulnerable to damage or loss with increasing occurrences of extreme weather, including drought, bushfires, rising sea levels, catastrophic storms and extreme temperatures. In Australia, we are already seeing the first of these claims involving relatively new assets, such as pipelines. Climate-related infrastructure issues will include asset loss or damage, performance impacts and potential regulatory exposures for infrastructure asset owners, operators, manufacturers and designers. Insurers will need to identify the risks for each infrastructure asset, assess their materiality and work with the insureds on building climate resilience into their business plans. This is particularly important for essential service assets, such as transportation infrastructure, and energy, water and sewage assets.

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