Allianz: Construction companies to see robust growth and “new age” risks post-Covid

“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 & Construction team at AGCS. “While construction projects continued during the pandemic, and further growth is to come, 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. Together with our clients, we will help manage these challenges as AGCS is committed to the construction industry as a key target sector for our growth initiatives.”

Global top 10 construction markets see continued shift to emerging markets, with China and US clear leaders in 2030. These 10 markets are expected to represent two-thirds of global output in 2030.

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The strong growth outlook for the sector is based on a number of factors, such as rising populations in emerging markets and significant investment in alternative forms of energy such as wind, solar and hydrogen, as well as power storage and transmission systems. The shift to electric transport will require investment in new plants and battery manufacturing facilities and charging infrastructure. Buildings are not only expected to improve their carbon footprint, but will also require improved coastal and flood defences and sewage and drainage systems in many catastrophe-exposed regions in response to more frequent extreme weather events. At the same time, governments in many countries are planning major public investments in large infrastructure projects to both stimulate economic activity after the pandemic crisis and drive the low carbon transition. In the US, a $1trn+ infrastructure package touches everything from bridges and roads to the nation's broadband, water and energy systems. At the same time it has announced plans [1] to invest in a number of large infrastructure projects around the world in 2022 in response to China’s ambitious Belt And Road Initiative [2], which could stretch from East Asia to Europe. Four countries – China, India, US and Indonesia – are expected to account for almost 60% of global growth in construction [3] over the next decade.

Downsides of the construction boom

The expected boom brings specific challenges in addition to benefits. In the medium term, sudden surges in demand could put supply chains under additional pressure and exacerbate existing shortages of materials and skilled labor, causing schedule and cost overruns. In addition, many in the industry may need to accelerate the implementation of efficiency and cost-control measures if profit margins have been impacted in the Covid-19 economy, which can often impair quality and maintenance levels and increase susceptibility to errors. Analysis by AGCS shows that design defects and poor workmanship are one of 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.

The enhanced sustainability and net zero focus will strongly influence the traditional risk landscape in the construction sector. According to the UN Environment Programme [4], buildings and the construction industry account for 38% of all energy-related carbon dioxide emissions. In order to cut carbon emissions, existing buildings will need to be refurbished and repurposed. Additionally, new materials and construction methods will need to be introduced across the market in relatively short periods of time. This will bring an increased risk of defects or may have unexpected safety, environmental or health consequences. For example, as a sustainable and cost-efficient material, the use of timber in construction has increased in recent years. However, this has implications for fire and water damage risks. AGCS claims analysis shows that fire and explosion incidents already account for more than a quarter (26%) of the value of construction and engineering claims over the past five years – the most expensive cause of loss.

Upscaling clean energy – renewable risks

Expanding clean energy brings new risks, too. Offshore wind projects are growing in size, moving further out to sea and into deeper waters, meaning the costs associated with any delays or repairs is increasing. Offshore wind farms, as well as onshore wind and solar projects, can also be exposed to serial losses. A design or manufacturing fault in a turbine, for example, can impact many projects. There have also been large claims from faulty foundations in solar parks and farms. Repairs to undersea cables, which weigh thousands of tons and require special ships to lay, can take more than a year. An offshore converter station alone can cost as much as $1.5bn, comparable to an oil rig. A fire or explosion involving a converter, as seen recently in China, can result in a total loss.

“Huge investments in green energy will mean larger values at risk, while the rapid adoption of prototype technology, buildings methods and materials will require close cooperation between underwriting, claims and risk engineering in-house, as well as between insurers and their clients,” says Olivier Daussin, Construction Underwriting Lead in AGCS’ global Energy & Construction team.

The two sides of modular construction

Ultimately, modern building and production methods have the potential to radically transform construction, transferring more risk offsite and incorporating greater use of technology. Modular construction in particular provides many benefits such as 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. However, it also raises risk 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,” Daussin explains.

The shortage of skilled labor in the construction industry is likely to further the trend towards offsite manufacturing and automation. At the same time, digitalization of construction creates cyber exposures which engineering and building companies need to strengthen their defenses against. Today, the numerous parties involved on a construction site are interconnected through various shared IT platforms, which increases their vulnerability. Cyber risks can range from malicious attempts to gain access to sensitive data, to disruption of project site control and associated theft, to supply chain disruption, to potential corruption of project design data, resulting in delays and ultimately reputational risk for parties involved.

Better protection of building sites against natural hazards and water damage

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. Construction sites also need to give more consideration to mitigate the impact of climate-driven events, such as wildfires, flash flooding and landslides. AGCS claims analysis shows that natural hazards is already the second most expensive cause of construction losses, behind fire and explosion, accounting for 20% of the value of claims over the past five years.

Meanwhile, water damage continues to be a major source of loss during construction. AGCS has seen a number of surprisingly large losses from leaks from pressurized water or fire systems that go undetected or occur out of business hours, on weekends or during periods when site personnel are not present. Water leak detection and monitoring systems can help reduce the frequency and severity of water damage, mitigating expensive repairs and project delays.

[1] CNBC, U.S. plans January rollout of projects to counter China’s Belt and Road Initiative, official says, November 2021
[2] CFR, China’s Massive Belt and Road Initiative, January 2020
[3] Marsh, A global forecast for construction to 2030 issued in partnership with Oxford Economics and Guy Carpenter, September 2021
[4] United Nations Environment Programme (UNEP), Building sector emissions hit record high, but low-carbon pandemic recovery can help transform sector, December 2020

Allianz Commercial is the center of expertise and global line of Allianz Group for insuring mid-sized businesses, large enterprises and specialist risks. Among our customers are the world’s largest consumer brands, financial institutions and industry players, the global aviation and shipping industry as well as family-owned and medium enterprises which are the backbone of the economy. We also cover unique risks such as offshore wind parks, infrastructure projects or Hollywood film productions. Powered by the employees, financial strength, and network of the world’s #1 insurance brand, we work together to help our customers prepare for what’s ahead: They trust on us for providing a wide range of traditional and alternative risk transfer solutions, outstanding risk consulting and Multinational services as well as seamless claims handling. Allianz Commercial brings together the large corporate insurance business of Allianz Global Corporate & Specialty (AGCS) and the commercial insurance business of national Allianz Property & Casualty entities serving mid-sized companies. We are present in over 200 countries and territories either though our own teams or the Allianz Group network and partners. In 2022, the integrated business of Allianz Commercial generated more than €19 billion gross premium globally.

These assessments are, as always, subject to the disclaimer provided below.

The Allianz Group is one of the world's leading insurers and asset managers with around 125 million* private and corporate customers in nearly 70 countries. Allianz customers benefit from a broad range of personal and corporate insurance services, ranging from property, life and health insurance to assistance services to credit insurance and global business insurance. Allianz is one of the world’s largest investors, managing around 746 billion euros** on behalf of its insurance customers. Furthermore, our asset managers PIMCO and Allianz Global Investors manage about 1.8 trillion euros** of third-party assets. Thanks to our systematic integration of ecological and social criteria in our business processes and investment decisions, we are among the leaders in the insurance industry in the Dow Jones Sustainability Index. In 2023, over 157,000 employees achieved total business volume of 161.7 billion euros and an operating profit of 14.7 billion euros for the group.
* Including non-consolidated entities with Allianz customers.
** As of March 31, 2024.
Lesiba Sethoga
Allianz Commercial (Johannesburg)
Daniel Aschoff
Allianz Global Corporate & Specialty (Munich)
Olivia Smith
Allianz Commercial (Rotterdam)
Ailsa Sayers
Allianz Commercial (London)
Sabrina Glavan
Allianz Commercial (New York)
Camila Corsini
Allianz Commercial (Sao Paolo)
Heidi Polke
Allianz SE
Florence Claret
Allianz Commercial (Paris)
Wendy Koh
Allianz Commercial (Singapore)
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