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Interruption, disruption, natural catastrophes top list of risks for construction, engineering sector

6th April 2023

By: Donna Slater

Features Deputy Editor and Chief Photographer

     

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Business interruption, supply chain disruption and natural catastrophes rank as the top risks facing the construction and engineering sector, followed most recently by the energy crisis, according to respondents to a risk barometer survey done by financial services company Allianz.

After the launch of the top global business risks in the 'Allianz Risk Barometer 2023' in January, Allianz Global Corporate & Specialty (AGCS) has now published its 'Global Industry Solutions Construction Outlook' – one of several risk trend briefings for specific industry sectors.

AGCS construction global industry solutions director Blanca Berruguete says that, on the top risks, larger values are at risk for companies. “Construction costs are soaring because of the higher prices for energy and raw materials. Replacement is costing more and taking longer. Materials can also often be unavailable due to logistics, shipping and supply-chain bottlenecks.”

The result, she says, is that any property damage and business interruption losses are now likely to be significantly higher than before the Covid-19 pandemic.

“The construction industry is facing a number of challenges such as the prospect of recession; the shortage, and rising cost, of energy, key equipment and materials given recent high inflation; a spike in procurement costs; ongoing shortage of skilled labour; longer lead times, schedules and cost overruns; compromised supply chains; ever-changing workplace protocols; and increased competition,” says Berruguete.

While the energy crisis, in combination with other factors, has contributed to rising costs given construction is an energy-intensive economic activity, Allianz says, in the mid- to long-term, it could also act as a catalyst for the sector to fast forward its green transformation, adopting more sustainable approaches given it is a key contributor to greenhouse-gas emissions.

The drive to net zero will help deliver strong future growth for the construction industry, but new technologies, innovative delivery methods and greener, leaner practices will also bring new risk scenarios such as potential defects and repetitive loss scenarios or unexpected safety or environmental consequences, in addition to benefits, states Allianz.

“The switch to sustainable energy and the adoption of modern building methods will transform the risk landscape, with radical changes in design, materials and construction processes,” explains Berruguete.

To meet carbon reduction targets, she says rapid adoption will likely be required, meaning close cooperation between insurers, brokers and clients, to share data and experiences to help underwrite what can be prototypical risks.

Further, regarding actual claims patterns, fires and natural disasters are the top contributors to construction and engineering losses according to AGCS analysis of 22 000 insurance claims worth €12.8-billion over five years, from 2017 to 2021.

Allianz points out that fire is the most expensive cause of loss, accounting for 27% of the value of claims analysed. Natural catastrophes account for almost a fifth of claims by value (19%) and are also the most frequent cause.

As such, the firm advises that construction sites need to give more consideration to the impact of extreme events, such as wildfires, flash flooding and landslides in their risk assessments.

With climate change increasing the frequency and severity of these events, the costs of property damage and business interruption are expected to escalate, Allianz states.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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