VIDEO: The Construction Industry – reflecting on 2021 and what to expect in 2022
In 2021, the Construction Industry experienced a period of sustained recovery in the first half of the year and saw healthy growth levels on infrastructure, private, social, and residential projects. This was a positive improvement following the previous decline in growth witnessed in 2020, due mainly to the impact of the pandemic and the UK’s departure from the European Union; Brexit left the construction industry severely impacted with a 14% contraction in real terms growth by the end of 2020.
What challenges were faced by the Construction Industry in 2021?
Cost and shortage of construction materials
The cost of construction materials has continued to increase throughout 2021. The rising price of raw materials such as steel, concrete, timber, and glass have contributed to the construction price growth recording its highest rate since records began. Increased lead times for key products and plant has caused difficulties for Contractors and Developers who have experienced project delays as key items are proving difficult to source and supply.
The construction labour market is still facing a shortage of skilled workers, with wages (especially in London) increasing in an attempt to attract new employees. Labour shortages are not just as a result of Brexit, although the exit from the European Union has exacerbated the shortage of skilled construction workers.
The ageing workforce within the UK Construction Industry is a significant challenge. The industry needs to drastically evaluate how it plans to provide upskilling, education and early engagement at school level, which will be vital to stimulate and grow the work force to meet the future demand. Unfortunately Government investment for this initiative has been minimal and the private sector has struggled to provide adequate upskilling support.
Insolvency measures put in place by the UK government in 2020 have allowed the industry an element of breathing space, but contractors continue to struggle with cash flow and the removal of further Government support has led to an increase of contractor insolvencies during Q4 2021.
How did insurers react to the Construction Industry in 2021?
In recent years insurers have seen large scale construction losses and the market had reacted by significantly reducing capacity and carriers. Those insurers still participating in the sector introduced significant rating increases (from around Q3 2018). However, rating in 2021 does appear to have stabilised. There have still been rating increases this year, albeit at more conservative levels compared with those seen previously.
As we reach Q4 of 2021, pandemic losses are beginning to show in insurers books. As many insurers had already been pro-actively bringing their books to a more profitable level for the past three or four years, this should hopefully offset some of the pandemic losses that will inevitably impact insurers.
- CIREG adherence
Insurers in 2021 were particularly focused on Water Damage mitigation methods with the insistence on CIREG compliance becoming ever more stringent. CIREG requirements focus on water leak detection systems and automatic cut off valves. Water management plans have been a required piece of information for insurers when quoting on new projects. Ensuring that these are kept up to date and adhered to throughout the project period is critical.
As mentioned earlier, the increased cost of raw materials and labour in 2021, has resulted in an increase in claims inflation. Some underwriters are therefore looking to introduce precautionary rate increases as they attempt to predict future price inflation and the impact this will have on claims costs.
- Project extensions
Inevitably, construction projects are now encountering delays and not completing on time due to challenges including supply chain delays, labour shortages and increasing lead in times for key products. Whilst Insurers do not generally have an issue extending policies, some insurers are increasing their rates and charging more than the standard pro rata premium for extension periods. They view this phase prior to practical completion as higher risk with enhanced exposure for the potential for a much larger loss particular with regards to water damage related claims.
The Griffiths & Armour Construction team are staying in close contact with insurers and underwriters and will report on how the stance of insurers may change in 2022.
To provide insight into the construction market in 2022, we are delighted to be able to provide a short video featuring Griffiths & Armour Client Services Executive, Emma Snelson and Construction Broker, Gina Charles.
The video, which can be found at the top of this article, covers their predictions for 2022 and beyond, what to expect from insurers and the integral part an insurance broker plays in the placement of construction project insurances.
If you have any questions on the contents of the article or video, please click below to submit your enquiry to Emma and Gina who will be happy to help.