The global construction market is set for a sustained period of strong growth post-Covid-19, driven by government spending on infrastructure and transition to a net zero society, according to a new report from Allianz Global Corporate & Specialty (AGCS).
The report noted that the switch to more sustainable buildings and infrastructure, the upscaling of clean energy facilities and the adoption of modern building methods will transform the risk landscape, with radical changes in design, materials and processes.
However, these developments could further burden the currently-stressed supply chains, add to shortages in materials and labour and lead to increased costs after years-long tight margins in the industry.
“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
Read also: WIT Nigeria launches Makeathon to upskill women in Nigeria
“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,” he said.
The strong growth outlook for the sector according to the report 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 report stated.
“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, the report also noted.
It further highlighted that, in the US, a $1 trillion+ 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 to invest in a number of large infrastructure projects around the world in 2022 in response to China’s ambitious Belt and Road Initiative, which could stretch from East Asia to Europe. Four countries – China, India, US and Indonesia are expected to account for almost 60 percent of global growth in construction over the next decade.
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 percent of the value of almost 30,000 industry claims examined between 2016 and the end of 2020.
“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’s global Energy & Construction team.
