The adoption of new technologies in construction will fundamentally affect the risk landscape for global engineering insurance, says a global research institute.
According to the latest sigma study from the Swiss Re Institute, global engineering insurance premiums for 2017 were estimated at around $21 billion, more than R276 billion, but have declined in recent years.
The research showed that new technologies could also lead to significant improvements in efficiency, including enhanced monitoring, reduction and management of engineering-related risks, although they create new risks such as cyber.
“Urbanisation, the replacement of ageing infrastructure and development of renewable energy sources should all promote construction spending and engineering insurance demand,” said the institute in a statement issued late on Wednesday.
However, construction spending as a percent of gross domestic product (GDP) in many advanced markets remains below its pre-2008 financial crisis peak, while some key emerging markets are only slowly emerging from recent recessions.
Underwriting performance has deteriorated recently, with premium rates declining and claims rising in some construction sectors. The research further showed that while London remained an important centre for construction-related insurance, increasingly engineering risks were underwritten from international hubs in Singapore, Dubai, and Miami.
The research stated that comprehensive data on engineering premiums are lacking in the market, based on an extensive research of available country-level sources.
The 2017 estimated global engineering insurance premiums, which were at around $21 billion, represented roughly three percent of total commercial insurance premiums in that year.
Swiss Re Institute said around half of the market is accounted for by project insurance, which protects against risks incurred during construction or installation of plant, buildings, and infrastructure.
After rising rapidly through most of the 2000s as construction activity in a number of developing countries soared, global engineering premiums have stagnated in recent years.
The EMEA region nonetheless continues to generate the largest share of global engineering premiums, mostly due to the popularity of operational covers such as machine breakdown and construction insurance.
The 2008 financial crisis was primarily caused by deregulation in the financial industry which permitted banks to engage in hedge fund trading with derivatives. Banks then demanded more mortgages to support the profitable sale of these derivatives, and that created the financial crisis that led to the great recession.