What will it take to ride the construction boom?

As the world continues to emerge from the pandemic, many industries are struggling to adapt to the “new normal.” Among them is the construction business, currently experiencing a boom after years of pent-up demand.

Unfortunately, this construction boom is taking place amid significant supply chain disruptions —a hangover from Covid-19 that has been exacerbated by the war in Ukraine—as well as an ongoing labor shortage. These two factors are driving construction expenses through the roof. For example, price inflation for new, non-residential building construction in the U.S. reached 17% in March (general inflation had reached around 8.6% in the U.S. economy in May) and according to the UK's Department for Business, Energy and Industrial Strategy, UK building materials inflation was 25% in April year-on-year, as compared to a 7.8% CPI.

How builders address these challenges could have considerable repercussions for the insurance industry. Faced with the skyrocketing cost of raw materials, some may cut corners, opting to use fewer or lower-quality materials, potentially resulting in issues like reduced fireproofing or building integrity. Meanwhile, those unwilling or unable to pay to secure qualified labor might settle for cheaper, unqualified workers. Both situations could lead to more and higher claims in personal liability, and property and professional indemnity over the life of the building.

And these aren’t the only potential risks faced by insurers who cover construction projects: Spiraling construction expenses lead to higher valuations of real estate investments, leading to increased replacement costs.

Swiss Re’s Project Underwriting Management Application (PUMA) helps insurers minimize their risk amid these challenges. It is a fully digital platform that provides structured rating and costing guidance based on Swiss Re’s troves of engineering underwriting IP, insights collected from across the industry and even historical natural catastrophe data.

Basically a cloud-based app, PUMA allows underwriters within the same organization in different locations to store, retrieve, copy, access and share quotes within their company, for consistent steering of a portfolio. The best part: you can be up and running in minutes. No installation is required, the learning curve is minimal, and there’s no need to buy multiple user licenses.

On a personal note, years ago as a junior facultative Underwriter I used PUMA to underwrite a small dam project in Latin America. Though it was a relatively low-stakes assignment in the context of the wider reinsurance industry, for me it was a seminal moment: here I was, three years into my career being able to handle this small but complex risk on my own. And that was made possible by the simple, instructive and friendly "coach" that was PUMA. I will always be grateful.

Insurers must not let the tail effects of the pandemic or geopolitical tensions curtail their interest in the construction sector. Fit for present times, PUMA can help insurers better assess and minimize their exposures, so they can continue riding the construction boom wave.