On the back of a major infrastructure boom, the Australian construction sector is facing a host of challenges ranging from an ageing workforce and a need to attract new skilled workers, to an urgency to embrace new technologies and a host of legislative changes surrounding the use of aluminium composite panelling after the Melbourne Docklands’ Lacrosse Apartments Tower fire in November 2014.
In the view of Jim Wiechman (pictured), underwriting manager at SURA Construction, the array of changes in the sector have brought with them a need for insurers to take a refreshed approach to business.
“The breadth of infrastructure projects is stretching the ability of local players to supply the skills necessary to meet demand,” he told Insurance Business. “Also, several recent building failures revealed a credibility gap in the competency of some commercial and high-rise builders. This raised questions on the effectiveness of current regulation and its policing. Meanwhile, in the home building space, historically low interest rates have partially offset the slowdown in new starts caused by tighter lending criteria.
“Maintaining healthy construction portfolios in this market requires insurers to take a more pragmatic approach in communicating what is and isn’t covered and ensuring their products are priced accordingly.”
When it comes to communicating the ins and outs of a policy to an insured, the broker is widely considered the best solution – but they too have faced their own concerns in the space ranging from “the tightening of terms and conditions through to price movements and capacity reduction in the construction insurance market,” Wiechman explained.
“The construction insurance industry is less affected by under-insurance compared to the general property market, particularly in adequate indemnity limits,” he said. “This is because our policies typically use the contract value as the basis of setting limits of indemnity and this amount is easily validated.
“Regarding breadth of cover, the majority of leading construction insurance providers already offer strong cover under their standard wordings. In fact, widening cover can be a double-edged sword for some insureds if it means importing covers offered by other insurance policies.”
Yet despite the market’s complexities, there are opportunities for brokers to bring their expertise to the fore.
“Levels of cover are generally poorly understood by insureds in the SME space,” Wiechman said. “Most insureds typically delegate their purchase decision to their broker and consequently have a reduced understanding of their contractual obligations and liabilities.
“At SURA, we often see onerous conditions around indemnity being passed down by principal contractors to contractors and these often require legal advice to ascertain their full impact. Brokers offer an excellent source of risk management advice and information on insurance suitability but there’s always room to improve. Insureds who actively engage with their broker are more likely to have better insight into the extent of their cover.”
However, for brokers to truly thrive in the space and build out their reputation there are still lessons for them to learn. Drilling down to the finer details with an insured is vital in ensuring they get the cover they desire.
“From an underwriter’s perspective, receiving comprehensive and complete information for quotations can be a challenge,” Wiechman concluded. “Construction risks are complex and incomplete proposals are usually a symptom of brokers requiring more education on the details.”