Business disruption/supply chain disruption is the main risk facing the construction and engineering sector, which has been hit by rising construction costs, supply chain disruptions and labor shortages, according to a report published by Allianz Global Corporate & Specialty (AGCS).
Ranked as the second highest risk in the sector are natural disasters, followed by the energy crisis as a new entrant at number three.
While the long-term outlook for the sector is positive, it faces a number of shorter-term challenges such as the prospect of recession; the shortage and increase in the cost of basic equipment and materials due to the recent high inflation; increased procurement costs; persistent shortage of skilled labor; longer lead times, schedules, and cost overruns; compromised supply chains; changing workplace protocols; and more competition, AGCS said in a briefing on the construction sector report, Global Industry Solutions Outlook – Construction.
The AGCS construction briefing uses data from the Allianz Risk Barometer 2023, published in January and based on a survey of 2,712 risk management experts from 94 countries and territories. The construction briefing is based on a survey of 161 respondents from the sector.
Not only is the cost of building replacement higher and longer, but the materials are also more expensive, commented Blanca Berruguete, director of global industry solutions for AGCS Construction, quoted in the briefing.
“[T]The cost of cement, timber, steel, glass and paint all increased last year, in some cases by 50%, while construction inflation is in the range of 11% to 25% in countries such as US, UK and Germany – but often unavailable due to logistics, shipping and supply-chain bottlenecks,” he continued.
The end result is that property damage and business disruption losses are likely to be higher than before the pandemic, the report said.
The Allianz survey revealed that the second highest risk that worries executives in the construction and engineering sector is natural disasters (which can lead to business disruption / supply chain disruption).
“Our analysis of claims in the construction and engineering insurance industry worldwide shows that natural hazards are now the second most expensive cause of loss, accounting for 20% of the value of those acquisition of five years – second only to fire and explosion,” continued Berruguete. .
“With climate change increasing the frequency and severity of extreme weather events such as hurricanes, floods, and wildfires this means that the costs of property damage and business disruption from these events are expected to increase,” he said.
Given the fact that it is now more expensive to repair or rebuild damaged properties, Berruguete said, it is important that businesses work with insurers to ensure they have accurate and up-to-date valuations. assets so that they are fully compensated in the event of loss.
Ranking number three in the list of risks for the construction and engineering section is the energy crisis, which, together with other factors, contributes to the increase in costs, due to the fact that construction is an economic activity that energy efficiency, the report says. In the medium to long term, however, the energy crisis can also act as a reason for the sector to rapidly pursue a green transformation, adopting more sustainable methods, because as it is a significant factor in greenhouse gas emissions.
The global construction market is set for a sustained period of strong growth in the coming years, driven by an expected surge in government spending on infrastructure, population growth, rapid urbanization in developing countries. market, and the global drive towards a more sustainable world, said the report. . The construction sector is expected to see growth of US$ 4.2 trillion in the 15-year period from 2022 to 2037 – or growth of more than 40% in the size of the global market, says AGCS, citing in Oxford Economics.
In fact, driving to net zero will help provide strong future growth for the construction industry. The report warns that new technologies, new delivery methods and greener, leaner practices will also bring new risk scenarios such as potential defects and recurring scenarios. of loss, or unexpected safety or environmental consequences.
“The transition to sustainable energy and the adoption of modern construction methods will change the risk landscape, with radical changes in design, materials and construction processes and the introduction of new technology,” the report said.
“To achieve carbon reduction targets, rapid adoption is likely to be necessary, meaning close cooperation between insurers, brokers and clients, to share data and experiences to help underwrite what the prototypical risks,” said Berruguete.
“In any industry, the deployment of new technologies can also bring new risk scenarios such as potential defects or unexpected safety or environmental consequences, as well as benefits, ” the report says, citing the example of modular construction, which can mean less construction waste, shorter timelines and reduced environmental disruption but also raises risk concerns about repetitive loss scenarios.