Complex risks faced by the construction industry

The cost of insurance is rising; across the industry, prices in the UK doubled between 2018-2023. Meanwhile, products such as professional indemnity insurance – key cover within the construction sector – increased by up to four times as much.  This is largely due to the construction industry facing increasingly complex risks which has reduced capacity and limited capital. But what are these risks, and can anything be done to overcome these challenges?

Impact of inflation

Economic inflation is a key risk for the construction industry; in a survey by construction consultancy Gleeds, 87% of respondents believed that inflation was affecting the viability of projects. Labour and materials costs are higher, with construction site wages going up by 4.7% between 2022-23.  These expenses are projected to keep rising, as BCIS estimate that building costs will increase by a further 15% by 2029.  As a result, property loss costs are higher and recovery times are longer, and the price of insurance has increased to reflect this.

Workforce shortage

As we have previously mentioned, there is an ongoing skills shortage within construction – a consequence of the ageing workforce and a historic reliance on skilled workers from the European Union. This has an effect on insurance – if there are fewer contractors on site, there is a higher risk of accidents and of delays to the project. As a result, some insurers are limiting protection and cover can be more difficult to place.

Other factors

Insurers must also consider that supply chains are still slowly recovering after disruptions caused by the pandemic were exacerbated by geopolitical tensions. Plus, global warming means there is increased exposure to natural disasters, with businesses claiming a total of £443 million for weather-related damage last year.  Additionally, there is now more potential for higher liability losses, as insurers’ claim costs are rising above the standard rate of inflation. This has put pressure on the property, liability and surety insurance sectors which has, in turn, impacted construction.

Overcoming the challenges

To bring down the cost of their premiums, construction companies must carefully consider all the risks involved with a project to show that they are fully prepared. Preventing errors will be key to this, as the construction industry loses up to £10-25 billion each year due to avoidable mistakes. Project managers should be transparent about what action they are taking to mitigate risks, and make sure everyone involved in the project takes responsibility for risk management.  For guidance, they could consult the Insurance Guide developed by the Get It Right Initiative, which aims to eliminate error in the construction industry.

The importance of insurance

Insurance and brokers are more important than ever. Higher inflation rates mean that contractors risk being under-insured, leaving them very exposed in the event of a claim. It is therefore more important than ever to ensure the right level of cover is in place, so they are adequately protected. Brokers play a key role in this; when reflecting on the challenges faced by the construction industry, James MacNeal of Eon suggested “working with experienced brokers early in the renewal and placement process who understand the quality of information underwriters need”.

Here to help

Focus can help brokers insure their construction clients against all the risks that they face. For assistance in sourcing the most appropriate cover, please get in touch on 0345 345 4511 or email sales@focus-insurance.com.