Managing the new age of construction risk

Report | November 2021

The global construction market is set for a sustained period of strong growth, driven by an expected surge in government spending on infrastructure and the transition to net zero. However, the switch to sustainable energy and the adoption of modern building methods will transform the risk landscape, with radical changes in design, materials and construction processes.

According to a recent report from Marsh and Oxford Economics [1], the global construction industry is forecast to grow 42% to $15trn by 2030. The construction industry is expected to be a major driver of economic growth in the coming decade, outperforming manufacturing and services.

The positive growth outlook is based on a number of factors. Rising populations in emerging markets, urbanization and a growing working age population are expected to drive the need for homebuilding, infrastructure and workplace construction. The transition to a low carbon or net zero economy will require significant investment in alternative forms of energy, such as wind, solar and hydrogen, as well as power storage, transmission and supporting services. According to the International Energy Agency (
IEA) [2], pursuing net zero would create a market for wind turbines, solar panels, lithium-ion batteries, electrolyzers and fuel cells of well over $1trn a year by 2050, comparable in size to the current oil market.


The shift to electric transport will also require investment in new plants and battery manufacturing facilities, as well as charging infrastructure and power generation. Ford alone has committed to $11bn [3] investment in new plants. Huge investment is also required to make buildings more sustainable and lower greenhouse gas emissions. According to the International Finance Corporation [4] (IFC), green building in emerging markets represents a $24.7trn investment opportunity by 2030.

Climate change adaption and mitigation will also give rise to opportunities for the construction sector. Rising sea levels and increased risk of flooding will require new coastal and flood defenses, as well as sewage and drainage systems. Commercial buildings and plants may need upgrading to protect assets from storms and floods, while ageing infrastructure will need to be upgraded to cope with more extreme weather events.

Covid-19 is also likely to give a boost to construction and engineering. The pandemic exposed shortcomings in public services like health and social care, which could translate to increased spending on hospitals. The pandemic also demonstrated the need for more resilient supply chains, which could stimulate construction as manufacturing plants and warehouses are brought closer to home. Digitalization, which accelerated during lockdowns, is also likely to fuel construction activity, requiring telecommunications infrastructure, data centers, logistics and e-retailing hubs.

Infrastructure is forecast to be the fastest growth sector for construction with annual average growth of
[5] globally during the period from 2020 to 2025, driven by unprecedented levels of government stimulus. The US has passed a $1.2trn infrastructure bill while the EU has agreed a €723bn Recovery and Resilience Facility. However, given government borrowing during the pandemic, public sector and infrastructure investment is likely to see an increasing need for Public Private Partnerships (PPPs).

This boom in global construction will, however, present challenges for the construction and engineering sector, and their insurers. In the medium term, sudden surges in growth could put supply chains under additional pressure and exacerbate the existing shortage of skilled labor. Longer-term, huge investments in green energy will mean larger values at risk, while the rapid adoption of unproven technology, building methods and materials will require close co-operation between underwriting, claims and risk engineering, as well between insurers and their clients.

[1] Marsh & Guy Carpenter, Oxford Economics, Future of Construction, September 2021
[2] International Energy Agency, World Energy Outlook, October 13, 2021
[3] BBC, Ford announces $11.4bn investment in electric vehicle plants, September 28, 2021
[4] International Finance Corporation, Green Buildings: A Financial and Policy Blueprint for Emerging Markets
[5] Marsh & Guy Carpenter, Oxford Economics, Future of Construction, September 2021

Image sources: Adobe Stock

Global top 10 construction markets see continued shift to emerging markets, with China and US clear leaders in 2030. These 10 markets are expected to represent two-thirds of global output in 2030.

Source: Oxford Economics/Haver Analytics, Future of Construction, Marsh & Guy Carpenter. Graphic: Allianz Global Corporate & Specialty

Based on analysis of 29,640 insurance industry claims between January 1, 2016 and December 31, 2020 with an approximate value of €11.3bn (US$12.8bn). Claims total includes the share of other insurers in addition to AGCS.

Source: Allianz Global Corporate & Specialty

Based on analysis of 29,640 insurance industry claims between January 1, 2016 and December 31, 2020 with an approximate value of €11.3bn (US$12.8bn). Claims total includes the share of other insurers in addition to AGCS.

Source: Allianz Global Corporate & Specialty

The Covid-19 pandemic has brought about a new age of risk for all industries and sectors of the economy that will continue to dominate business risk mitigation strategies and controls for the foreseeable future.
The Covid-19 crisis has significantly suppressed global economic activity. Now that billions of vaccine doses have been administered governments are endeavoring to stimulate sustainable activity, not only with short-term economic subsidies but also with long-term strategies for a full economic recovery.
A global transition to a more sustainable future, including efforts to cut carbon emissions, will have profound implications for construction risk. As a significant contributor to greenhouse gas emissions, the construction industry has been singled out for action by the EU, which has committed to becoming carbon neutral by 2050. 
The global drive to reduce greenhouse gas emissions has seen huge investments in renewable energy, in particular wind and solar. At the same time, new low-carbon technologies are being developed, such as battery storage and hydrogen power, that will need to be massively scaled up to meet international emission reduction targets under the Paris Climate Accord.
Achieving net zero will also require huge investment in entirely new sources of power, storage capacity and distribution infrastructure. For example, a reliance on renewable energy will require large scale battery storage capacity to smooth out supply, while hydrogen gas is being touted as an alternative to natural gas. Green hydrogen – produced using renewable energy – could provide a solution for hard-to-abate sectors such as the steel, petrochemical and cement industries, as well as be used to power long distance transport.
Recent crises, such as the Covid-19 pandemic, as well as the development of technology, new materials, manufacturing machinery and equipment, and increasing reliance on digitalization, have facilitated the emergence of a number of new trends across the construction industry. One of the most important is modular construction, which has developed over decades, although its market penetration and popularity has only increased in recent years.
The construction industry has proved resilient to the pandemic, with many projects continuing throughout. However, Covid-19 restrictions have increased the cost of some large machinery claims, while material inflation, shortages of labor and supply chain disruption may be storing up problems for the future.
Extreme weather events have caused large losses for the property insurance market in recent years, driven by climate change and growing economic activity in catastrophe-exposed parts of the world. Floods in Europe following storm Bernd during the summer of 2021 are expected to cost the insurance industry $12bn, making the event the most expensive natural catastrophe to hit the continent in modern times.
Water damage continues to be a major source of loss during construction, in part due to changes in construction methods and materials in recent years. A faulty or incorrectly-installed connector or pipe can cause costly damage on a site, especially in high-rise buildings and projects nearing completion.
Even onsite, the use of technology is increasing in the construction industry. Robots are beginning to find more uses, such as carrying out specialist tasks like welding and bricklaying, as well as automated plant like excavators. Connected equipment and tools, virtual reality, sensors, wearable devices and cloud-based platforms are also being introduced to manage supply chains, improve safety and project management.

Allianz Risk Barometer

  1. Business interruption (43%) - 2021 rank: 1 (44%)
  2. Natural catastrophes (42%) - 2021 rank: 2 (35%)
  3. Fire, explosion (24%) - 2021 rank: 4 (32%)

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The Allianz Group offers a wide range of products, services, and solutions in insurance and asset management and operates as an international insurer on almost every continent.
With our worldwide network, Allianz Global Corporate & Specialty (AGCS) is one of the very few global insurers with an exclusive focus on the needs of global corporate and specialty clients.