“Sustaining a business in an economy under prolonged pressure is a challenge. Add the risks associated with the engineering and construction sector, it’s no surprise that many companies are closing or scaling down, and mining operations are showing contraction.
This is due to delays in contracts being awarded as companies go into business rescue owing to the poor economic climate. Insurers should expect their clients to downsize portfolios,” states Michael Steensma, Senior Manager: Engineering at Old Mutual Insure.
Risks for insurers and the insured
The biggest risks for insurers in the engineering and construction sector include contract types, location, and lack of skills - these together with fire, theft (particularly where copper cabling is involved), riots and strikes. “Furthermore, we are moving into an era where climate change is a reality and needs to be considered by the insured and insurers,” says Steensma.
For the insured, the risks include failing to cover free issue materials in their policies. These are the materials given to the contractor free of charge (not catered for in terms of the bill of quantities) for incorporation into the project and must be included in the sum insured.
“Some clients forget or fail to insure their surrounding property exposures correctly,” says Steensma. This would cover employers’ property in the care, custody and control of the contractor against damage caused by construction activities.
Another consideration to take into account is covering delays in start-up. “This is available for employer-controlled projects to cover the loss of profits, revenue or rental in the event that the project is not completed in time due to an insurable event such as fire damage,” he says.
Tailored insurance solutions
According to Steensma, a tailored insurance solution across a number of lines of business associated with construction projects could mitigate risks. “Our Construction Risks policy provides cover to our customers for their construction projects not only for loss or damage to the works but also the third party losses arising from the performance of the project, from the time they break ground until the project is completed and handed over. The policy includes the works and liability covers during the defects liability period.”
Future engineering and construction insurance opportunities
Steensma sees the increase in infrastructure and housing projects, due to urbanisation, providing key opportunities for insurers. “Another opportunity would come from replacing of aging infrastructure (roads and services) and renewable energy.”
To meet these opportunities, the insurance industry needs to innovate and adapt. “One way we have done this is by providing a single product for mega projects that require cover from the marine stage, through to construction and then operational cover including liability exposures.”
Steensma further suggests increasing emphasis on actuarial and computer-based risk modeling to better understand and evaluate risk exposures at any stage of a project. "Future clients will expect to do business quicker, easier and more efficiently, promoting the need to review our distribution channels." He cites the business information modeling process, which is being implemented by the larger construction companies, as a good example.
“An increase in technology could lead to improvements in efficiency and potentially make a risk more attractive,” concludes Steensma.
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