By Jim Connolly, Head of Construction and Engineering at Infiniti Insurance
Innovative technologies and climate change will shape the future of infrastructure
Globally, there is an increase in the adoption of automation, modular construction techniques, as well as other innovative technologies that continue to shape the future of the construction industry. In South Africa, we have seen the demand for green building practices, being driven largely by environmentally conscious international investors.
Despite the current economic depression in the country, there is a high demand for more and upgraded roads, housing, energy, and water infrastructure. Construction companies that adopt sustainable practices may benefit from a competitive advantage in the industry when the government forges ahead with its commitment to a public sector infrastructure development plan.
The private construction projects funded by private and foreign investors will gain momentum this year as the world continues to recover from the impact of Covid-19 pandemic. However, global and national economic pressures will continue to affect the industry and the output is unlikely to return to pre-pandemic levels before 2025. The impact of the pandemic and the lockdown will linger for the next two years.
The economic risks in the construction sector
The construction industry in South Africa is facing substantial risks such as a shortage of equipment due to logistic restrictions caused by the pandemic. Contractors are now feeling the pressure as the cost of goods and services continues to rise due to the high inflation and interest rates globally. Shipment costs across the world have increased dramatically in the past two years, directly affecting the costs of imported goods, especially in the construction and engineering sector.
The construction industry’s top risks include scarcity of materials, liquidity risk and shortages of skills. Some of the contractors cannot necessarily afford to train or upskill their workers due to the depressed economic climate. But gradual national and global economic recovery from the aftermath of Covid-19 pandemic will bring new investment and this will boost the industry to create more jobs. However, procurement delays remain a major challenge. Construction companies should be cognisant of these supply chain risks and need to put measures in place to mitigate the risks.
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Mitigating and protecting the risks
Under this circumstance, insurance becomes critical to protect the industry against these emerging risks. The contractors need to understand the risks involved in the project in order to put necessary measures in place to mitigate any potential liability that may be incurred.
According to Allianz Global Corporate & Specialty’s Global Industry Solution Construction Outlook, fire and explosion are the most expensive cause of loss in the construction sector, accounting for 27% of the value of claims over a five-year period.
Contractors need to regularly assess and update prudent fire mitigation practices, such as preventative and extinguishing measures and methods. It’s essential to put contingency plans in place to lower or manage the risk of loss in an event of a fire at a construction site.
According to the AGCS report, natural catastrophes account for almost a fifth of claims by value (19%) and are the most frequent cause of the claim. Construction underwriters need to give more consideration to the impact of these risks, and other extreme events, such as flash flooding and landslides in their risk assessments. Climate change has also triggered an increase in natural disasters globally.
South Africa is no exception, having experienced the worst floods since 1978 when KwaZulu-Natal was hit with heavy rain, floods and landslides in April 2019, resulting in the deaths of 461 people.
At Infiniti Engineering our policy covers the risks during contract implementation and execution during rollout and installation as well as risks affecting machinery and equipment. Through our Guarantee Division we are also able to provide our clients with a Construction Guarantee should they require one.
The policy also provides cover for the engineering and covers the employer’s property in the care, custody and control of the contractor up to a limit agreed upon and stated in the policy. We believe that a strong partnership between our trusted brokers and a focused underwriter specialising in project and engineering insurance is fundamental to the success of construction projects.