Mike Winstanley, Head of Engineering, CIB
Construction – along with many other sectors in South Africa – has experienced incredibly difficult times, especially over the past two years.
According to Stats SA, the construction industry contracted by 1.9% in 2021 – the fifth consecutive year of decline. This downward trend comes on the back of a general decline of 6.4% in economic activity in 2020. We are, however, positive that there will be a rebound in the short to medium term, with government acknowledging the urgency to invest in new infrastructure as well as maintaining what we already have.
The importance of maintenance resurfaced after the devastating KZN floods in April. Reinforcing this drive is government’s recognition that infrastructure spend has an automatic knock-on effect of creating employment opportunities. Additionally, we believe infrastructural policy certainty and implementation will build momentum, which will then spill over into unlocking private sector investment into the construction space.
Things are looking more positive in 2022. We have seen an increase in construction activity and overall insurance spending since the easing of lockdown. Unfortunate events in KZN, such as the 2021 riots and this year’s floods, have led to increased activity in the construction market. However, we do need to acknowledge that these increases have come off a low base. We are still very much in a suppressed construction market and have seen policies being canceled as contractors are not able to fulfill premium obligations due to a lack of work.
The impact of the KZN floods
Between 9 and 12 April 2022, a strong cut-off low weather system along the KwaZulu-Natal coast resulted in downpours of over 300mm in a 24-hour period in some areas. This represents about a third of the annual rainfall in the region. The impact on construction projects – especially those nearing completion, and particularly in catchment areas and close to flood lines – was devastating. The region experienced landslides and mudslides that caused major damage to construction projects in progress, destroyed existing infrastructure and sadly led to loss of life.
eThekwini and its surrounds are characterised by hilly topography and particular soil types which, when subject to intensely concentrated water flow, especially in urban areas, can result in catastrophic landslides if there are insufficient flood water and drainage systems in place. Insurers will need to ensure that when construction is undertaken, especially in these areas, they are satisfied that adequate run-off and drainage systems will be designed to handle concentrated flow over a short period of time through the course of a construction project, to at least mitigate catastrophic damage.
Additionally, insurers may specify certain design requirements a contractor would need to comply with in order for the construction policy to trigger in the event of flood damage. It would therefore be prudent for brokers and their clients to be aware of any additional specific conditions imposed.
Overall, evidence continues to show that climate change is increasing the intensity and frequency of storm systems across the globe, which will directly correlate to an increase in insurance claims – and construction is no exception!