The year 2020 was not easy for any industry, including the construction industry. Although construction projects weren’t halted in Australia, consumer and investor confidence dropped massively – in turn affecting new business opportunities. Work on site was also considerably harder due to social distancing requirements, human resource shortages and supply chain interruptions.
In addition to the challenges that the pandemic brought, the construction market within the Asia-Pacific region has become more competitive with many mergers and acquisitions over the past few years. A difficult market with increased competition, acquiring a skilled workforce and unexpected supply challenges has hit some tier 1 – contractors particularly hard.
HDI Global Australia regional risk engineer Dean Pola said, “Some are going through real financial challenges and COVID-19 has not helped matters with the uncertainty for finalising and starting up of new projects and the challenges of obtaining available project resources such as specialised personnel, building materials and equipment.”
The tough times have also seen the private residential and office building construction sectors become more competitive. Due to the pandemic, there is less need for office space and high-rise apartments as they are faced with large vacancy rates according to Mr Pola.
However, the year has also shown how adaptable people are and after several difficult months the current outlook is on the rise again. Industry experts expect considerable growth in the construction business driven by the Australian government’s infrastructure push and accelerated spending. In mid-June 2020, it was announced that 15 infrastructure projects worth A$72bn ($54bn) will be fast-tracked.
“Government agencies appear to be promising increased and fast-tracking expenditure of government infrastructure projects and encouraging renewable energy projects to ignite the Australian economy as we run out of the COVID impact period,” Mr Pola said.
Impact forced new offers and out-of-the-box thinking
The impacts that mergers and acquisitions as well as the pandemic had on the construction sector were also felt by the insurance market. According to HDI Global Underwriting manager Australasia, engineering Rolf Heyke construction contracts have become more complex over the past few years with increased risk imposed on contractors – a fact that has resulted in increased loss ratios. “As underwriters have typically not made money on these types of projects, many have become more risk averse,” he said.
Insurances had to adapt to the changing market whilst also dealing with the challenges the COVID-19 pandemic posed. Risk engineering teams have taken additional technology on board to manage challenges that have arisen during the pandemic. Site risk assessments had to be done virtually and the use of communication tools like Microsoft Teams or Zoom has increased.
“This type of working has been no substitute to conducting normal practice in person surveys but in these challenging times they have been a viable replacement until things return to near normal business practices,” Mr Pola said.
To adjust to the changing business landscape the company is also currently developing risk assessment gradings for various types of projects which will provide clients and brokers sound assessment of the risk quality for a particular type of project.
“We are also working on a number of technical guidance papers for HDI Global underwriters on various building and construction technologies such as engineered timber building product materials,” Mr Pola said. This allows underwriters to understand their clients’ business better.
Compared to Australia, Asia’s construction industry has seen a lesser impact. According to HDI Global underwriting manager for Greater China, Southeast Asia and Korea Terence Tang, some projects have been extended due to the cessation of works, or the development of projects has been delayed.
However, overall, the impact has been minor. Mr Tang reported an increase of globalisation in the sector despite current border closures between some countries. “We can see that contractors in Asia are participating in construction projects or clients are investing in infrastructure or expanding their production facilities outside their countries,” he said.
New technologies will shape the future
The use of new technology has not only started to transform the insurance industry. The construction sector is also taking new ideas on board.
Currently there are several technologies that are developing into game changers for the industry including the use of integrated building information modelling (BIM) management and pre-fabrication building components. The use of BIM allows 3D-computer imaging to check on the project for how it virtually fits together before physical problems can arise on-site, requiring costly rectification works and redesign.
Prefabricated components manufactured off-site improve construction quality and on-site speed of construction with less on-site trades required. This limits the use of the old slow style ‘stick type’ site construction activities.
Adapting to these new ways will become essential in the coming years to stay competitive in the market. Insurances that want to succeed in the coming decades will have to integrate these future state-of-the-art technologies to improve their own business practices and to be more transparent and efficient in dealing with customers, in assessing damages and handling claims.
HDI Global, for example, has already introduced a platform that combines industrial insurance expertise with state-of-the-art technologies, HDI THINX. An example currently being investigated is the use of remote monitoring of risks to directly update systems giving a real time impact on the risk quality and any insurance policy condition and coverage. Clients and brokers can also make use of this service to help their business and interaction with the company. A
Mr Stefan Feldmann is the regional head ASEAN and Australasia and managing director with HDI Global in Australia.