You've been in the market for 17 years. What have been the biggest changes in the insurance and construction sectors between now and then?
JH: Technological advances in the construction industry across this period including modular buildings, remote-operated vehicles, scanning and modelling technology to name a few as well as the boom in renewable energy technologies. These advances have enabled construction projects to proceed at faster rates with a greater complexity of programme and interaction between critical path items than ever before.
In terms of the insurance market, the cycling between hard and soft markets culminated in a withdrawal of capacity from the global construction & engineering market around 2018. This signalled the end of a prolonged soft market and within the next few years, it hardened significantly, with reinsurers driving large rate increases and narrower treaty terms which flowed into the up-front insurance markets.
You have been hired to help Vero and its construction clients protect themselves against new and emerging risks. Which risks have come to the fore in recent years impacting NZ businesses?
With climate change ever-present and the increasing frequency and severity of natural catastrophe events, weather-related risks are at the forefront of construction clients' minds.
2023 has seen the January floods and Cyclone Gabrielle – two of New Zealand's largest CAT events. In addition to normal loss expectancy within the market, this presents significant financial and non-financial risks for New Zealand businesses and projects.
Is underwriting capacity strong enough in this area, or is there more for insurance companies to do?
Underwriting capacity in the construction & engineering market has contracted globally for the past few years, which coincided with the end of a prolonged soft market in specialty risks and increasing interest rates globally.
Alternative capital that was otherwise flowing into reinsurance markets switched direction and started flowing out back into the bond markets and other investment vehicles.
Insurance companies can provide stronger technical expertise in the construction & engineering product suite and maintaining underwriting discipline are key to reinsurance markets re-gaining confidence and capacity re-entering the market.
This, in tandem, with greater granularity within NATCAT modelling in secondary perils such as flood, insurance companies can improve visibility across their portfolios and make more informed decisions around risk allocation and capacity deployment.
Are any new insurance products emerging in this area to help construction clients guard against these new and emerging risks?
There is a growing market in non-traditional insurance and reinsurance products to help clients manage climate-related risks such as NATCAT bonds and parametric coverages. Albeit these products are more suited to larger entities such as government clients. A wider range of renewable energy construction products wouldn’t go amiss in the New Zealand market either.
How can brokers help their clients navigate new and emerging risks linked to the adoption of new technologies?
New technologies are constantly emerging within all sectors of the economy,and keeping up with these developments is key to understanding clients' risk profiles in order to better manage and mitigate risk.
What other trends are you noticing in the construction space that brokers should be aware of?
In the large infrastructure space in New Zealand we have seen alliancing delivery models dominating over the past 10 years. However, with an election pending and tighter central government budgets, I predict we will see the re-emergence of design & build and public-private partnerships as a preferred method of delivery. These models bring their own unique risks and challenges.
What are the main challenges for the NZ insurance market in the year ahead?
The major challenges are continuing to deploy capacity to our clients whilst maintaining underwriting discipline in an environment of sharply increasing reinsurance costs from the treaty market off the back of the 2023 CAT events.
What are the opportunities and what gives you cause for optimism?
There are always opportunities in any market environment. We have seen a significant uptick in large-scale infrastructure projects in the pipeline and increasing investment in renewable energy.
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