Report Suggests Optimism for Construction Industry, but Vigilance is Required

“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 and construction team at Allianz Global Corporate & Specialty in a new report. “While construction projects continued during the pandemic, 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.”

According to the report, the expected construction boom brings specific challenges and benefits. Surges in demand could put supply chains under additional pressure and intensify existing shortages of materials and skilled labor. An analysis by AGCS shows design defects and poor workmanship are among 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.

Concerning modular construction, AGCS suggests this process comes with its share of advantages and disadvantages. Positive outcomes include 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. Negatively, modular construction raises 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,” says Olivier Daussin, construction underwriting lead in AGCS’s global energy and construction team.

Enhanced sustainability and net-zero focus will influence the construction sector’s traditional risk landscape. The report references a release from the UN Environment Programme, which states buildings and the construction industry account for 38% of all energy-related carbon dioxide emissions. Existing buildings will need to be refurbished and repurposed to cut carbon emissions. Additionally, new materials and construction methods will need to be introduced across the market, introducing a risk of defects, safety concerns, environmental or health consequences.

AGCS’s report states “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.”.