- The Asia Pacific infrastructure market is
expected to grow 7 – 8% a year over the next decade.
- Current shortage
of materials and skilled labor add to long-term challenges around new design,
materials and building methods driven by sustainability and net zero strategies.
- AGCS analysis of €11bn
worth of construction and engineering claims over five years identifies top
causes of loss by value: fire and explosion (26%), faulty design/poor
workmanship (20%) and natural hazards (20%).
companies need to improve cyber resilience and protect buildings sites against
flash flooding and other extreme weather events driven by climate change. "Out
of hours" water damage a major source of loss.
PAULO/SINGAPORE - Media OutReach - 30 November 2021 - The global construction market
is set for a sustained period of strong growth post-Covid-19, driven by
government spending on infrastructure and the transition to a net zero society.
However, the switch to more sustainable buildings and infrastructure, the upscaling
of clean energy facilities and the adoption of modern building methods will
transform the risk landscape, with radical changes in design, materials and
processes. These challenges add to currently-stressed supply chains, shortages
in materials and labor
and increased costs, which all come against the backdrop of years-long tight
margins in the industry. A new report from Allianz Global Corporate &
Specialty (AGCS), Construction risk after Covid, explores both acute and long-term risk
trends for the construction sector.
"Covid-19 has brought about a new age for the construction
industry," says Yann Dreyer, Global Practice Group Leader for Construction in
the global Energy & Construction team at AGCS. "While construction projects
continued during the pandemic, and further growth is to come, the overall environment
has changed fundamentally. The industry faces new challenges around supply
chain volatility and spiking material costs, skilled workforce shortages and
the heightened focus on sustainability. In addition, the accelerated deployment
of cost-cutting strategies and implementation of new technologies and designs
may well result in accelerated risks for construction companies and insurers
alike. Continued risk monitoring and management controls will be key moving
forward. Together with our clients, we will help manage these challenges as
AGCS is committed to the construction industry as a key target sector for our
strong growth outlook for the sector is based on a number of factors, such as
rising populations in emerging markets and significant investment in
alternative forms of energy such as wind, solar and hydrogen, as well as power
storage and transmission systems. The shift to electric transport will require
investment in new plants and battery manufacturing facilities and charging
infrastructure. Buildings are not only expected to improve their carbon
footprint, but will also require improved coastal and flood defences and sewage
and drainage systems in many catastrophe-exposed regions in response to more
frequent extreme weather events. At the same time, governments in many countries
are planning major public investments in large infrastructure projects to both stimulate
economic activity after the pandemic crisis and drive the low carbon
transition. In the US, a $1 trillion+ infrastructure package touches everything from bridges and roads to
the nation's broadband, water and energy systems. At the same time it
has announced plans
to invest in a number of large infrastructure projects around the world in 2022
in response to China's ambitious Belt And Road
Initiative, which could stretch from East
Asia to Europe. Four countries – China, India, US and Indonesia
are expected to account for almost 60% of global growth in construction
over the next decade.
The Asia Pacific infrastructure market is expected
to grow 7
– 8% a year over the next decade, reaching US$5.36
trillion a year by 2025.
of the construction boom
The expected boom brings specific challenges in addition to benefits. In the
medium term, sudden surges in demand could put supply chains under additional
pressure and exacerbate existing shortages of materials and skilled labor, causing
schedule and cost overruns. In addition, many in the industry may need to
accelerate the implementation of efficiency and cost-control measures if profit
margins have been impacted in the Covid-19 economy, which can often impair
quality and maintenance levels and increase susceptibility to errors. Analysis
by AGCS shows that design defects and poor workmanship are one of the leading
causes of construction and engineering losses, accounting for around 20% of the
value of almost 30,000 industry claims examined between 2016 and the end of 2020.
enhanced sustainability and net zero focus will strongly influence the
traditional risk landscape in the construction sector. According to the UN
Environment Programme, buildings and the construction industry account for
38% of all energy-related carbon dioxide emissions. In order to cut carbon
emissions, existing buildings will need to be refurbished and repurposed.
Additionally, new materials and construction methods will need to be introduced
across the market in relatively short periods of time. This will bring an
increased risk of defects or may have unexpected safety, environmental or
health consequences. For example, as a sustainable and cost-efficient material,
the use of timber in construction has increased in recent years. However, this
has implications for fire and water damage risks. AGCS claims analysis shows
that fire and explosion incidents already account for more than a quarter (26%)
of the value of construction and engineering claims over the past five years –
the most expensive cause of loss.
clean energy – renewable risks
Expanding clean energy brings new risks, too. Offshore wind projects are growing
in size, moving further out to sea and into deeper waters, meaning the costs
associated with any delays or repairs is increasing. Offshore wind farms, as
well as onshore wind and solar projects, can also be exposed to serial losses.
A design or manufacturing fault in a turbine, for example, can impact many
projects. There have also been large claims from faulty foundations in solar
parks and farms. Repairs to undersea cables, which weigh thousands of tons
and require special ships to lay, can take more than a year. An offshore
converter station alone can cost as much as $1.5bn, comparable to an oil rig. A
fire or explosion involving a converter, as seen recently in China, can result
in a total loss.
investments in green energy will mean larger values at risk, while the rapid
adoption of prototype technology, buildings methods and materials will require
close cooperation between underwriting, claims and risk engineering in-house,
as well as between insurers and their clients," says Olivier Daussin,
Construction Underwriting Lead in AGCS's global Energy & Construction team.
two sides of modular construction
The size of the global modular
construction market size is projected to grow from $82bn in 2020 to $109bn by
2025, at a combined annual growth rate (CAGR) of 5.75%. In terms of value and
volume, permanent modular construction is estimated to dominate the market and
steel is tipped to be the fastest-growing market segment. The healthcare
industry is projected to be the fastest-growing end-use sector through to 2025,
with the Asia-Pacific region set to grow at the highest CAGR of any region
during this period, followed by Europe and North America.
and production methods have the potential to radically transform construction,
transferring more risk offsite and incorporating greater use of technology. Modular construction
in particular provides many benefits such as controlled factory-based quality
management, less construction waste, a construction timeline cut in half
compared to traditional methods, and reduced disruption to the surrounding
environment. However, it also raises risk concerns about repetitive loss
scenarios. "There is an increased risk of serial losses with modular and
prefabricated methods as the same part could be used across several projects
before a fault is discovered," Daussin explains.
shortage of skilled labor in the construction industry is likely to further the
trend towards offsite manufacturing and automation. At the same time, digitalization
of construction creates cyber exposures which engineering and building
companies need to strengthen their defenses against. Today, the numerous
parties involved on a construction site are interconnected through various
shared IT platforms, which increases their vulnerability. Cyber risks can range
from malicious attempts to gain access to sensitive data, to disruption of
project site control and associated theft, to supply chain disruption, to potential corruption of project
design data, resulting in delays and ultimately reputational risk for parties
Better protection of
building sites against natural hazards and water damage
The need to
reduce greenhouse gas emissions will not only drive a more sustainable approach
to residential and commercial buildings as well as infrastructure but may also
hasten the trend as the industry looks to achieve efficiencies and minimize
waste. Construction sites also need to give more consideration to mitigate the
impact of climate-driven events, such as wildfires, flash flooding and
landslides. AGCS claims analysis shows that natural hazards is already the
second most expensive cause of construction losses, behind fire and explosion,
accounting for 20% of the value of claims over the past five years.
Meanwhile, water damage
continues to be a major source of loss during construction. AGCS has seen a number
of surprisingly large losses from leaks from pressurized water or fire systems
that go undetected or occur out of business hours, on weekends or during
periods when site personnel are not present. Water leak detection and
monitoring systems can help reduce the frequency and severity of water damage,
mitigating expensive repairs and project delays.