Construction insurance market trends: South Africa

Construction All Risks

Construction All Risks

The South African economy has entered into a recession and job losses are on the increase. The sovereign downgrading has impacted the country. The political landscape has stabilised somewhat since the replacement of Jacob Zuma with Cyril Ramaphosa. However, there remains an unsettled outlook and this has resulted in declining investment opportunities.

South African construction firms continue looking north for business prospects.

Claims activity within the construction industry remains at a low frequency but with some reported cases of high severity including injuries (and a number of fatalities).

In the medium term we see multiple insurers participating on major risks, in order to provide capacity. Pricing is likely to remain soft as insurers look to build their client base.

We expect there to be a continuation of insurers hedging against the loss of local business with more profitable, hard currency business in the rest of Africa.

Construction Liability

Construction Liability

Specialist construction underwriters / underwriting managers are happy to include primary contractors’ liability under a combined contract works policy. Generally, there few differences in the bespoke wordings available in the market however clients should work with their broker to ensure coverage is appropriate for their risks.

Increased limits are provided by way of difference in conditions (DIC) / difference in limits (DIL) policies. This coverage is usually included under an umbrella liability policy.

Professional Indemnity

Professional Indemnity

The appetite of capital markets to invest in the South African insurance sector is high. In respect of professional indemnity insurance, we do not expect that this will change dramatically over the next few years.

Even when large claims are experienced, something which impacts most insurers, new capacity entering the market continues to ensure rates and coverage are not impacted.

Motor, Plant & Equipment

Motor, Plant & Equipment

The quality of South African roads continues to deteriorate. This, coupled with the high level (70%) of uninsured vehicles on the roads, should make this class of insurance expensive to purchase. However, there is an abundance of capacity and rates remain static.

There are an increasing number of insurers adopting the use of telematics to manage costs by generating better driving behaviour by their policyholders. Driver training programmes are seldom implemented and commercial vehicle drivers may have a low level induction process complicating the situation.

In an attempt to stem increasing costs from purchasing new plant items, clients are increasingly refurbishing items of plant. This has interesting implications in terms of the basis of valuation and claims settlement for insurers. Consider this with your broker to ensure you have appropriate and effective coverage.

Marine

Marine

Cyber risk is a growing concern for companies. In a recent global survey, close to half of corporations polled, (48%) consider cyber to be a greater risk than others.

In the context of the marine insurance environment, clients should be aware of their potential exposures as all navigation and propulsion systems, cargo tracking systems at ports, shipyard inventories and processes are all controlled using software.

In June 2017, A.P. Moller-Maersk, owner of the world's largest container shipper, Maersk Line, was hit by the global Petya cyber-attack. The attack caused congestion at some of the 76 port terminals and resulted in major delays and, in certain instances, containers were lost and/or loaded and directed to incorrect destinations.

With marine delay in start-up (DSU) policies, it is important to bear in mind that this risk has the potential to cause significant delays to project completion and consequent business interruption. It is also important to bear in mind that coverage under a DSU policy generally will be subject to the Institute Cyber Attack Exclusion Clause meaning loss as a result of a hacking event such as the one described above would not be covered.

D&O Liability

D&O Liability

The current level of settlements and claims inflation in the South African directors and officers (D&O) liability environment are not giving rise to rate increases or a change to retention levels.

A slowdown in economic growth and investment in infrastructure has not produced the expected increase in claims against larger construction firms. In addition, the general D&O market remains stable. New capital providers continue to provide fresh capacity with at least ZAR 2 billion in capacity any one claim/any one insurance period available to large construction companies.