Property insurance responds to financial losses from physical damage, and on Canada's largest and most complex construction projects, some of the costliest exposures now involve no damage at all.
That mismatch is widening, according to Leszek Bialy (pictured), senior vice president of corporate risk in Aviva Canada's global corporate and specialty division. The risk profile of a modern build, he said, has shifted on several fronts.
"Elevated material costs that we saw arise through COVID, tightening financing conditions, compressed profit margins, as well as increasing climate volatility that impacts projects," Bialy said, listing the pressures. He added that the scale of projects has changed the picture, pointing to "multi-billion-dollar projects" where financing pressure and labour shortages compound one another.
Part of the strain, Bialy said, has been structural. Construction coverage has traditionally been split across separate specialists who rarely worked in concert.
"Historically in the industry, you have different individuals managing different aspects of the solutions," Bialy said. "They've historically sort of lived and worked in different worlds and managed their separate relationships."
Those silos carry their own friction, he said, because the parties do not always price risk the same way. "Finance, surety-focused appetite and insurance appetites don't always align," Bialy said, "and that was an issue for customers and brokers."
Aviva has since folded property and casualty and surety capabilities into a single focus, and rolled out the approach formally in late May.
"Within Aviva, we have one unified construction team approach, where we have the capabilities for P&C as well as surety," he said.
The clearest version of the gap is weather. A rain delay can trigger contract penalties without breaking anything, leaving a standard policy with nothing to respond to.
"We have a critical window, a period of time to do a major concrete pour as part of a project," Bialy said. "And within that window, a rainstorm happens, and the rainstorm, as a result, delays the pour from happening. The contractor who's doing the pour of that concrete may suffer penalties that otherwise would not be covered by another traditional insurance product because there wasn't any physical damage."
Parametric weather coverage is designed for that gap. Rather than indemnifying a loss after an adjuster assesses damage, it pays a predefined amount when a measured weather event crosses an agreed threshold.
"It doesn't require resultant damage to occur like a traditional insurance policy," Bialy said. "It just has to be triggered by, let's say, those meteorological events, and/or rainfall of a certain amount. And if that was predefined, then the policy would pay out."
The trigger is tied to third-party data rather than a claims investigation.
"We work with a specific company that has historical data on all those meteorological touch points, and then we set a threshold as part of the contract," Bialy said. "And then should that threshold be exceeded, then it would trigger the policy, and a payout would be forthcoming."
The same mismatch shows up in quieter form in how large projects are insured against their own costs. Builder's risk coverage tends to track the physical components of a build well. The financial layers around them are harder to capture.
Bialy said cost volatility and underinsurance are long-standing concerns, but not evenly distributed. "For standard projects, it's less of a concern," he said. "We're seeing adequate insurance to value on the projects."
Most run on Canadian Construction Documents Committee contracts, a standardized format used across the industry that has made hard-cost valuation relatively predictable.
The harder questions arise elsewhere, Bialy said, and grow with the size of the job.
"For the longer-term projects or the bigger projects, there's some concerns in terms of the soft costs," Bialy said. "Those are the professional fees, financing, development fees, and project management fees that sometimes gets to be a concern for these larger [projects]."
The physical build, by contrast, is the part insurers can price with confidence.
"The hard construction costs - the labour, the materials and so forth - are well understood," Bialy said. "And that's where it can be concerning – larger-scale projects could be underinsured on the soft [costs]."
