We are now halfway through 2022 and as identified at the end of Q1, we continue to see positive stabilization in most geographies around the world but not without some negative outliers such as Cyber, Wood Frame Construction and Professional Liability. At the same time, the construction industry is experiencing a positive outlook and increased activity as it moves past the severe downturn of 2020. Albeit the current environment has many positive indicators, contractors are keenly aware of significant headwinds and risks that are poised to negatively impact their projects such as inflation, supply chain breaks, labor shortages and material costs to name just a few. Many of the negative factors impacting the construction industry have arisen from dealing with the over 2 years of shutdowns and delays created by the global responses to COVID-19. Today, societies and businesses are learning to live with the virus but the residual impacts may have a far longer effect on the industry and economies around the world. During the first half of 2022, we have also seen global unrest and impacts to the industry from the Ukraine crisis beyond the devastating human toll. The crisis is yet to be resolved and the uncertainty in the near term will continue to increase concerns around supply chain disruptions and fuel costs. According to the “GlobalData Construction Outlook, Q2 2022”1 construction output is expected to grow by 3.3% which is down from the previous projection of 4%.
In almost every region of the world, the expectations of large investments into infrastructure and energy have buoyed a positive outlook but again, factors previously mentioned around inflation and material availability are tamping that optimism. However, the industry, as it always has, is showing resilience and delivering growth in infrastructure of 4.9% and in the energy space of 3.1%. As highlighted in our Q1 WTW Rate Tracker Report, the hospitality sector is still not back to 2019 levels but one area that is expanding is warehousing and the construction of data centers much of which have been accelerated particularly in the U.S. Another active segment globally is the construction of renewable energy projects and large-scale battery storage systems.
As the construction industry continues to work back to pre-COVID-19 levels, the insurance industry is dealing with many of the same factors of project delays and material cost inflation all increasing loss estimates and requiring new depths of underwriting analysis to properly price an exposure. The heightened scrutiny has once again further driven our description of a two-tiered market. As defined in our Q1 report, the tiers are delineated by those contractors, owners and developers that have taken extra effort to set themselves apart as best in class and can show the results. The environment, coupled with continuing turnover in the insurance brokerage business, has influenced many clients to “shop” their business looking for alternative options, but in the end, the majority have elected to stay with their incumbent markets. The key success factors that have been discussed in the industry for positive program outcomes at renewals or for project placements are still as important as ever and are aimed at setting you apart as a preferred risk. Those include:
Areas that are currently posing the greatest concern for underwriters and resulting in the greatest unpredictability on rate include:
In summary, 2022 continues to show both positive and negative trends which are requiring anyone responsible for the risk aspect of their business to look broadly for standard and alternative solutions to handle the wide spectrum of exposures. Now is the time to engage in early discussions on upcoming projects or renewals and develop detailed strategies for optimizing your risk management program objectives. Look for new players and entry points into the market and review markets you may not have expected to be viable for your program because risk appetites can and do change. We are very proud of our strong global business and stress that each region around the world has nuances that are important to recognize. We hope our regional summaries give you the specifics for your business. If you have questions as you read our report, please reach out to any of our global experts for more insight.
1 Global Data, Global Construction Outlook, Quarterly Update, Q2 2022, June 2022, pp. 7.
Bill Creedon is the Global Head of Construction for WTW. During his time in the industry, Bill has held a variety of roles ranging from client management to local and global leadership. Over the years, Bill has gained experience with a broad spectrum of heavy civil and building contractors. Bill also works closely with the Graduate Development Program at WTW dedicated to fostering young talent within the company.