The adoption of new technologies in construction could lead to significant improvements in efficiency for engineering insurance, a sector that has largely stagnated in recent years, according to a new study by Swiss Re’s sigma.
Global engineering insurance premiums were estimated to total around $21 billion in 2017, but have suffered in recent years due to a deterioration in underwriting performance, with premium rates declining and claims rising.
Mike Mitchell, Head of Property & Specialty Underwriting at Swiss Re, commented: “Engineering premium rates have been declining for over a decade. Some engineering insurers’ profit margins may already have been squeezed close to or below levels that are sustainable over the long term.”
However, urbanisation, the replacement of ageing infrastructure, and the development of renewable energy sources should drive construction spending and insurance demand in the future, while new technologies will likely enhance the monitoring, mitigation, and management of engineering-related risks.
Swiss Re observed that construction has typically been slow to innovate, but there are now signs of rising digitalisation in the sector, with more than 400 constructech start-ups having been formed since 2009, raising around $2.9 billion in funding.
While the use of digital technology could significantly enhance efficiency in the sector, it will also bring new risks related to cyber and security.
Mitchell explained: “Technology also affects the nature of existing risks and brings with it new risks such as cyber. Insurers could see the severity of claims increase even if the frequency of accidents continues to fall.”
The report claimed that product and process innovation will help re/insurers respond to the evolving risk and competitive landscape, but that mitigating risk in a digitally connected world may require a radical reconfiguration of engineering insurers’ current business models.
The engineering sector grew rapidly through the 2000s as construction activity in developing countries soared, but it has since slowed as countries reacted to the 2008 financial crash and recessions hit many key emerging markets.
Nevertheless, the EMEA region continues to generate the largest share of global engineering premiums, largely due to the popularity of operational covers such as machine breakdown and construction insurance.
Additionally, while London remains an important centre for engineering and construction-related insurance, particularly for high-value projects that are technically demanding to underwrite, risks are now increasingly being underwritten from international hubs like Singapore, Dubai, and Miami.
Swiss Re concluded that, beyond technological innovation, the outlook for engineering insurance would be heavily influenced by prospective growth in the world economy, with cyclical acceleration in economic activity expected to stimulate construction activity and insurance demand in the near term.