Shane Graham, Executive Director: Mirabilis
Shane Graham, Executive Director: Mirabilis provided us with some comments on the current environment in which the construction and engineering insurance industry operates.
Both our Minister of Finance and President Ramaphosa committed to a strong focus and budget allocation to infrastructure spending. Will that be enough to get an ailing construction & engineering sector going?
While commitments and promises made are certainly a step in the right direction, what the country now needs is a focused approach and commitment to “prioritised” implementation and use of resources. According to a report in Business Tech, almost a quarter of South Africa’s R340 billion worth of strategic infrastructure projects have been delayed or put on hold.
Government and business’ focus should be on basic infrastructure necessities aimed at getting our country fully operational and efficiently running to generate income without interruptions. This would include prioritised focus on sustainable power, and water supply. Water is our most precious natural resource, and along with other infrastructure, is a prerequisite to economic growth.
There is a notable need for public-private partnerships as this will have a positive impact on economic growth.
- Does the economic pressure result in lower standards in this industry, increasing risk?
Ongoing economic pressure has undoubtedly resulted in the top five construction companies either closing down or battling depleted order books. In many instances, this has led to skills and expertise being diluted or no longer available. Smaller companies with only portions of the corporate memory and expertise – are simply not enough to deal with and handle the snowballing demands on the country and its economy.
While ground-level skills may very well be sufficiently available, this is nowhere near adequate when attending to the everyday operations, tenders, and administration required for a successful company. This results in processes being diluted which means a domino effect on overruns, delays, the risk of higher claims, and ultimately increased consumer costs.
Budgetary spending, or lack thereof, is the key contributor to the lowering of workmanship and standards in the construction industry, again opening doors to escalating risks for the insurer.
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- What is the insurance industry doing to withstand the pressure on premiums and increased competition?
Less than two decades ago, the construction industry enjoyed a 15% profit margin – this is now often forfeited just to keep staff and resources working.
The risks for insurers are constantly increasing, leaving very little or no room for onsite errors, and forced lowering of premiums. Some of the major contributors include theft of steel and cables, also contributing to electricity outages, and rapidly changing weather patterns – noting that insurance premiums are based on statistics of past events.
To this extent, it is surprising to see the significant number of new entrants to the insurance market (i.e. increased competition) despite the already lowered premiums being offered.
While the pressure is on the industry and increased exposures can be addressed to an extent, insurance serves a vital purpose, and will be around to support economic growth and enable development.