How Construction Risk is Evolving and Driving Demand for New Insurance Solutions
Snapshot
A number of existing risks in the construction sector are now more significant due to growth and changes in the industry itself, and in the economic and political landscape.
This is leading to high demand for risk transfer, with the insurance industry having to adapt and innovate to offer the capacity and complex solutions required.
Cooperation between all stakeholders and early communication are vital if projects are to remain viable and deliver lasting value.
New trends in construction and a rapid increase in the scale and number of projects are magnifying existing risks and introducing new ones.
The scale and complexity of projects globally, and across New Zealand - ranging from infrastructure rebuilds to green energy developments - are amplifying traditional risks and introducing new ones. Project leaders, risk managers and insurers must work together to develop solutions that secure the future of multi-million-dollar projects. Below are some key issues that leaders in the construction and insurance industries are grappling with, and some insights on the way forward for innovative risk mitigation for the sector.
#1 Technology and cyber risks are on the rise
Cybersecurity risks are escalating as the industry becomes more reliant on Artificial Intelligence (AI) and cloud-based systems. “Cyber risks are growing in sophistication,” says Patrice Nigon, Head of Engineering and Construction, APAC SE Asia for Swiss Re Corporate Solutions. “If designs are encrypted or altered maliciously by viruses, this can introduce major downstream project risks.” Patrice also highlights the pros and cons of using AI in the design process. “Amazon executives are calling AI the biggest invention for humanity since the wheel,” he says. “But there is always the difficulty of knowing how accurate it is. Design offices are already using AI extensively and it always carries a degree of risk.”
Michael Twyman, General Manager – Professional Risks and Construction at Aon New Zealand emphasises the need to prioritise cybersecurity from the outset. “It’s not just about protecting information—it’s about safeguarding project delivery and reputation."
#2 Geopolitical volatility puts supply chains in peril
With tensions between China and the US expected to escalate, plus the ongoing conflict in Ukraine, geopolitical instability is an ongoing issue for global supply chains. As Patrice points out, even regional conflicts can create major economic shocks for construction supply. “Take the South China Sea, for example,” he says. “If tensions between China and Taiwan escalate, it could disrupt supply chains and communication across economies that are very interconnected – and New Zealand is no exception.”
#3 Disruption from climate and natural catastrophe hazards
Climate change is driving an alarming increase in extreme weather events, which not only disrupts construction projects, but also puts built infrastructure at risk over the long term. 2023 was the hottest year on record since temperatures have been measured and we know that New Zealand’s exposure to earthquakes, floods and severe weather events is a defining characteristic of the local risk landscape. The need for resilient design and robust insurance solutions is more urgent than ever, especially as climate change increases the frequency and severity of such events.
“We know that our clients are looking for insurance solutions that can respond quickly and flexibly to natural catastrophe risks.” says Twyman. “The challenge for insurers is to predict the probability and intensity of such events and price accordingly.”
Proactive risk strategies for the evolving construction landscape
As the construction industry continues to face these key risks, the real challenge isn’t just mitigating them, it’s rethinking how we build resilience into the DNA of our projects. The future lies in a more dynamic, integrated approach: leveraging predictive analytics to anticipate disruptions, embedding cybersecurity into project lifecycles from day one, and fostering deeper collaboration between contractors, insurers and policymakers. In this era of uncertainty, the most successful projects won’t just react to risks; they will proactively shape their own risk environments.
From new project management techniques to technology use, this evolution creates both challenges and opportunities for companies and the insurance industry to adapt their approach to risks assessment, measurement, mitigation and transfer. Below are four insights on the evolution of insurance solutions for the sector.
1. Engage early
Engaging with the market as early as possible is a critical step in securing cover. Underwriters require a high volume of information and they have a lot of risk to write. It makes sense that they will prioritise cover for clients with the best information available.
2. Collaborate with stakeholders
Collaboration in the early stages of a project is key to managing risks effectively and paving the way for fit-for-purpose risk transfer solutions. Involve brokers and insurers right from the beginning, rather than just during the risk transfer and risk monitoring activities. It’s vital to extend the scope of services from insurers to the beginning of the project to work on a common agenda of risk assessment and mitigation measures.
3. Share critical information
Companies that share critical information about their risk mitigation and project protections can educate insurers, which enables them to come to the table with better terms and coverage. “Clients need to educate the market,” says Twyman. “They need to show insurers what they’re doing to make project planning and implementation more resilient”. Investing in mitigation and projections not only protects projects but also signals to insurers that clients are taking proactive measures, making them more attractive from a risk perspective.
4. Explore alternative insurance solutions
The traditional insurance market, while robust, may not always provide the flexibility that emerging risks in construction demand. Alternative insurance solutions - such as parametric products - are gaining traction in New Zealand.
"We’re seeing more clients interested in exploring transfer options, such as parametric covers for weather events or bespoke solutions for major infrastructure projects. Early engagement with brokers and insurers is key to designing the right protection." emphasises Twyman.
By involving stakeholders early on, collaborating and being more transparent with critical information, the entire construction and insurance ecosystem can align around a shared understanding of risk. This fosters innovative solutions and ensures projects will have the right protections in place as the risk landscape evolves.
As the industry moves towards greener building solutions, proactive risk management is essential.