The past year has presented a huge number of new and real challenges to the construction sector. Not just from the obvious coronavirus, but from many areas, and not least of all the effects of Brexit finally becoming a reality. The construction insurance market is no different, with these world events giving insurers new challenges to interpret.
We have seen insurance premiums in this sector rise quickly over the last two years following a long period of low prices and generous policy extensions. This has come about as a result of the soft market being unsustainable in the face of large losses and new risks, forcing underwriters to tighten their appetites and, in many cases, withdraw from the sector entirely.
As we look forward to 2021 and how current events might shape the insurance and construction sectors, it is right to see both the positives and negatives concurrently and not focus, as our industry has for the last few years, solely on price rises and restrictions. There are many opportunities and tools available to property professionals that can be used to make sure that they are at the front of the trends that are coming.
Whilst the insurance market has been a difficult area to manage over the last two years, there are signs that the premium increases and limitations in cover are starting to stabilise. A stable market is a happy market. Premiums are much higher than they were previously, this is an indisputable fact. However, now that the new landscape is in view, property professionals and their brokers can start to plan based upon known costs and limitations rather than fighting a new battle with each new risk or renewal. This will allow for more accurate budgeting and risk management for new sites and projects and give a level of security, whereas before large and unpredictable insurance costs could significantly impact the profitability of a scheme or contract.
History teaches us that in times of recession and economic hardship, governments look to the construction sector as a route to inject life back into an economy. We can see this again now, with the current government actively working to lift red tape for developers and also making it easier for people to buy homes, and this only shows signs of increasing. In addition to this, their investment and commitment to HS2 (whichever side of the fence you sit) shows a willingness and determination to support significant infrastructure projects that will, in time, open many new opportunities for our industry beyond the evident civil engineering contracts.
New opportunities from COVID
After a year of working from home, it is clear that the office life that many have known for their whole career will never fully return. The huge demand for homes outside of cities presents the largest opportunity that developers have had in decades. Bigger homes with outside space are now highly sought-after, and this, combined with the profitability of out-of-town schemes, will be a huge benefit to many SME developers, who up to now have been unable to access the saturated inner city and town markets dominated by the national developers.
Henry South, head of construction insurance at London Belgravia Brokers, further comments, “Of course it is a fool’s errand to ignore and gloss over the challenges that face the construction sector and whilst I am positive about the future, I recognise that it is by no means a cakewalk. However, it is very important to maintain a positive outlook when there are such clear signs that things can improve so that they can be made the most of, and begin to offset the struggles of the past.”
Henry South is head of construction insurance at London Belgravia Brokers.
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