In this chapter of our Annual Insurance Review 2022, we look at the main developments in 2021 and expected issues in 2022 for construction.
Key developments in 2021
As anticipated, the ongoing pandemic and hardening insurance market has led to considerable financial pressure being placed on the construction industry. Whilst construction has continued, and construction output has increased, many construction firms operate without large capital reserves, and the pandemic has put many companies and, accordingly, projects in a vulnerable position.
Financial pressure has caused disruption in supply chains, additional project delays and labour shortages. It is not all about COVID, albeit it has, in some cases, been the straw that has broken the camel's back, with cashflow issues proving fatal to many companies. Brexit, higher insurance premiums and the increased demand for construction work are also responsible for the financial pressures faced by construction companies.
Of course, in a construction project, when one company 'goes down' it has serious implications for the whole project. This can, in turn, lead to fingers being pointed at other parties to the project, who may have done very little wrong, to recover losses (particularly if they are, or should be, insured).
The construction industry has seen a significant increase in the demand for (and, accordingly, cost of) labour. Trades have increased their rates on account of being inundated with work and, finally, construction projects have been affected by a real shortage of materials, caused by a slowdown in the production of materials during the pandemic, the shortage of lorry drivers and the current boom in demand. Manufactures and suppliers are struggling to build up stock level, and this is likely to remain an issue into next year.
On a separate note, in our last review, we mentioned an anticipated review by the Architect Registration Board on its investigatory processes and procedures. The ARB has set out a number of proposed changes to the Investigation and Professional Conduct Committee Rules, the Acceptance Criteria and Sanctions Guidance. Stakeholders have been anticipated to take part in the consultation on the proposed changes. Given the apparent increase in ARB disciplinary investigations into its members, we would recommend those stakeholders to provide input where possible.
What to look out for in 2022
Cladding does remain an issue in the industry, and new cladding claims are still coming in when perhaps it might have been expected that new notifications had run their course. The new claims tend to relate to more unusual systems or products, and there is a risk that the systemic issue is proceeding ever further into the building, starting with the panel, then the cavity barriers and finally insulation. Indeed, we anticipate that new claims may relate increasingly to materials that sit on the other side of the insulation and compartmentation.
The big topic in construction in 2022 is likely to be ESG. The built environment produces 30 percent of total greenhouse gas emissions and 40 percent of energy use worldwide, and construction expends 32 percent of the world's natural resources. This is occurring at a time when clients and investors are increasingly selecting brands based on their ethical behaviour and their record on climate change. Simultaneously governments are putting into effect regulations requiring companies to be more transparent in matters from diversity to carbon emissions. The construction sector has a crucial part to play in this, whether through the selection of building materials or by minimising the carbon output of buildings being designed and constructed. In addition, in order to improve consciousness of environmental issues across the sector, construction companies should look to have an ESG framework which recognises and measures such issues. It is likely that a company's approach to ESG is increasingly going to be a consideration when selecting companies to work on projects.
Written by Sarah O'Callaghan.
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