Spotlight on: The risk landscape of the Australian construction industry

Often described as the backbone of the Australian economy, the construction industry is forecasted to see continued growth at 3.4 per cent by 2025^[1]. Governments, investors and the broader market are looking to construction organisations to help drive the country's economic recovery post the global pandemic.

With increased momentum expected across all construction sectors, we explore the current risk landscape and exposures impacting the industry.

1. Natural hazards

Extreme weather events continue to increase in frequency and severity, exposing projects to natural hazards (bushfires, windstorms, floods, hail, and severe convective storms) and heavy seismic activity (tsunami and earthquakes). These events test the robustness of design and construction methodologies, resulting in greater risk to insurers.

It's important to work with a broker who can articulate to insurers the processes and work your business has implemented to reduce the risk for natural hazards, to mitigate increases in both premiums and excesses.

2. New technology and materials

Investment and attention to technological advancements are enabling the rapid introduction of new technology and materials to the market. The benefits of these advancements are being seen from an environmental, cost-efficient and aesthetic perspective. However, they require an integrative approach to risk allocation and discussions with your insurer in alignment with a business' overall risk profile.

3. Cyber risk and the construction supply chain

While all organisations encounter cyber risk, firms in the architecture, engineering, and construction (AEC) industry face heightened exposures. Cross- company collaboration during projects creates a complex ecosystem that depends on the continued integrity of peers' digital systems. Threats at all levels can cascade throughout operations.

4. The war for talent

The construction industry is undergoing a paradigm shift amid the ongoing COVID-19 crisis. Contractors are being challenged to innovate and invest in talent and technology as urbanisation, increased focus on climate change, digital advancements, globalisation, and smart buildings continue to shift industry expectations.

There is an opportunity for companies to improve the experience they offer their employees across a number of dimensions. Activating these improvements has the potential to deliver a competitive advantage for companies that can engage their employees and diversify their workforce.

5. Regulatory environment

All construction projects are subject to public scrutiny, potential legal challenges, and environmental, social, and governance (ESG) regulations. Developers, contractors and sub-trades must be well informed about regulatory frameworks and ESG guidelines, as governments will likely seek to balance these risks against the benefits of decarbonisation.

6. Contractual liabilities

With market trends indicating a continued rise in insurance premiums and coverage for select risks becoming more difficult to obtain, transfer of risk via contract is becoming an increasingly common strategy. Now more than ever, companies need to ensure they have a comprehensive understanding of their liability and indemnity clauses and any resulting gaps between their contractual liabilities. Insurance may never have the ability to cover all losses, but to thoroughly understand all your business risks, it's important to understand your uninsured exposures.

Designing solutions that reduce volatility

Marsh Specialty supports Australian construction companies to better understand and transfer risks while reducing volatility.

Our team of industry specialists take a consultative approach, working with our clients to deliver risk and insurance solutions tailored to the industry’s unique and evolving risk exposures.

^[1] Global Data. Construction in Australia: Key Trends and Opportunities by State and Territory to 2025 Report.