The recent collapse of a 50 year-old suspension bridge in Genoa Italy is a stark reminder of the devastating impact that failed infrastructure projects can have.
Roads and rail, hospitals and schools, airports and stadiums: there’s no doubt Australia is going through a turbulent infrastructure boom, perhaps its biggest yet. The Federal government has announced more than $75 billion in infrastructure projects across the nation over the next 10 years. The only catch? Australia is facing an unprecedented shortage of qualified construction workers and engineers, which threatens to impact the quality and progress of the projects.
While the upside for insurers is that this may result in more policies being written, the downside of the infrastructure boom is the potential increase in claims arising from the skill shortages currently being felt in the engineering and construction sectors.
From 2016 to 2017, national candidate availability in the construction sector dropped by 13% and by 10.7% in the engineering sector. Further, the Australian media has reported that NSW and Victoria are in a “war for resources” and, given the cost of housing in Melbourne is 20-25% lower than in Sydney, construction workers are opting to head south. All of these factors are adding to the growing infrastructure conundrum, particularly in NSW, and should be monitored closely by insurers. A particular area for insurers to take note of is the skill level and professional qualifications of its construction and engineering insureds.
Whether it’s the short term impact of damage in the contract works environment, or the longer term impact to PI and project specific insurers due to design deficiencies in larger projects, skills shortages, plus a lack of construction and engineering candidates, may lead to a more active claims environment.
During past infrastructure booms, clear links were made between skills shortages, and accidents leading to injury and death of civilians, such as the 1970 collapse of Melbourne’s West Gate Bridge. In addition, less intensive procurement processes, novel engineering practices on new and large projects and stricter project deadlines, are all reasons for the likely growth in insurance claims within the foreseeable future.
How insurers can minimise exposure
In order to minimise exposure, we recommend that insurers adopt rigorous practices when underwriting risks for construction and infrastructure projects. This includes a detailed analysis of past projects and capabilities to ascertain whether companies, their employees and their contractors have the requisite skills and experience to adequately carry out the project, as well as an analysis of notifications and claims history.
In addition, insurers may wish to implement additional criteria for insureds at the underwriting stage. For example, insurers may want to set a strict benchmark in terms of qualifications and years of experience and supervision before granting cover. This process should also be considered at renewal. The implementation of national mandatory registration for engineers (as is already in place in Queensland) could assist this process.
While the Australian experience is no doubt markedly different from the Italian (and particularly the damage recently experienced in Genoa), the large pipeline of projects coupled with an apparent lack of skilled professionals to service the work has the potential to fan the flames of a claims environment that insurers will want to ward off.