How Construction Risk is Evolving and Driving Demand For New Insurance Solutions 

New trends in construction and a rapid increase in the scale and number of projects are magnifying existing risks and introducing new ones.

This is challenging project leaders, risks managers and the insurance sector to seek out new solutions to secure the future of complex, multi-million-dollar projects. In a recent panel discussion at the Commercial Risk Construction Conference in Asia, leaders from the construction and insurance industries explored four key issues they are grappling with, and shared insights on the way forward for innovative risk mitigation for the sector. 

#1 Skills are in short supply 

According to the 2024 Aon Global Risk Management Survey, failure to attract talent and workforce shortages were two of the top five risks for the construction sector. With a global boom in construction activity, including infrastructure projects to support the energy transition, there is strong demand for a more diverse set of technical skills, as well as strong leadership for these large-scale projects. “The size and complexity of today’s projects are unprecedented,” says James MacNeal, Global Head of Construction and Infrastructure at Aon. “With tens of millions of dollars every week in cashflow, these projects require leaders who operate more like CEOs than engineers.” 

#2 Technology and cyber risks are on the rise 

Cybersecurity risks are escalating as the industry becomes more reliant on AI and cloud-based systems. “Cyber risks are growing in sophistication,” says Patrice Nigon, Head of Engineering and Construction, APAC SE Asia for Swiss Re Corporate Solutions. “If designs are encrypted or altered maliciously by viruses, this can introduce major downstream project risks.” Patrice also highlights the pros and cons of using Artificial Intelligence (AI) in the design process. ” Amazon executives are calling AI the biggest invention for humanity since the wheel,” he says. “But there is always the difficulty of knowing how accurate it is. Design offices are already using AI extensively and it always carries a degree of risk.” 

#3 Geopolitical volatility puts supply chains in peril  

With tensions between China and the US expected to escalate, plus the ongoing conflict in Ukraine, geopolitical instability is an ongoing issue for global supply chains. As Patrice points out, even regional conflicts can create major economic shocks for construction supply. “Take the South China Sea, for example,” he says. “If tensions between China and Taiwan escalate, it could disrupt supply chains and communication across economies that are very interconnected.”  

#4 Disruption from climate and natural catastrophe hazards 

Climate change is driving an alarming increase in extreme weather events, which not only disrupts construction projects, but also puts built infrastructure at risk over the long term.  “2023 was the hottest year on record since temperatures have been measured,” says Puneet Panchal, VP & Head of Insurance at Cube Highways and Transportation Assets Advisers. “In India, extreme heat events are accelerating at a rapid pace. The challenge for insurers is to predict the probability and intensity of such events to provide adequate coverage. Right now, there remains a significant gap between the demand for insurance and the available supply.” 

“The construction industry is facing a perfect storm of risks—talent shortages, cyber threats, geopolitical instability and climate disruptions. However, the real challenge isn’t just mitigating these risks, it’s rethinking how we build resilience into the DNA of our projects. Traditional risk transfer mechanisms are struggling to keep up with the sheer scale of modern construction. The future lies in a more dynamic, integrated approach: leveraging predictive analytics to anticipate disruptions, embedding cybersecurity into project lifecycles from day one, and fostering deeper collaboration between contractors, insurers, and policymakers. In this era of uncertainty, the most successful projects won’t just react to risks; they will proactively shape their own risk environments. – Vincent Banton, Aon 

Key insights for risk mitigation and transfer  

This widening protection gap is not confined to insurance cover for natural catastrophes.  As the construction sector evolves through new project management techniques and technology use, this creates both challenges and opportunities for companies and the insurance industry to evolve their approach to risks assessment, measurement, mitigation and transfer.  Our panelists offer four insights on the evolution of insurance solutions for the sector. 

1. Engage early
   Engaging with the market as early as possible is a critical step in securing cover. “You can’t engage with the market too early,” says James MacNeal. “Underwriters require a high volume of information and they have a lot of risk to write. It makes sense that they will prioritise cover for clients with the best information available.” 
2. Collaborate with stakeholders
   Collaboration in the early stages of a project is key to managing risks effectively and paving the way for fit-fot-purpose risk transfer solutions. “Involve brokers and insurers right from the beginning, rather than just during the risk transfer and risk monitoring activities,” says Puneet Panchal. “It’s vital to extend the scope of services from insurers to the beginning of the project to work on a common agenda of risk assessment and mitigation measures.” 

   Brendan Dunlea, Regional Property and Construction Manager in Asia for QBE, emphasises the importance of getting other stakeholders on board during this process. “Partnership between contractors, Original Equipment Manufacturers, and insurers is crucial,” he says. “It’s in everyone’s interest to have a successful project, and collaboration helps to prepare for less risk exposure and better outcomes.”

3. Share critical information
   Companies that share critical information about their risk mitigation and project protections can educate insurers, which enables then to come to the table with better terms and coverage. “Clients need to educate the market,” says James MacNeal. “They need to show insurers what they’re doing to make project planning and implementation more resilient. Using construction technologies like digital twins in the design stage or implementing fire sensors can make projects safer and reduce risks.”
   Investing in these risk-reducing technologies not only protects projects but also signals to insurers that clients are taking proactive measures, making them more attractive from a risk perspective. 
4. Explore alternative insurance solutions
   The traditional insurance market, while robust, may not always provide the flexibility that emerging risks in construction demand. By exploring alternative insurance solutions, insurers and their clients can work together on tailored risk transfer strategies. “We need to be more imaginative and work with brokers to design new types of cover because little has changed in insurance cover since 1995,” says Patrice Nigon. “Understanding the insured’s appetite to retain risk is critical . If there is interest, captives could be an option to explore.”
   Puneet Panchal agrees with the need for insurers and clients to innovate and consider alternatives. ” Parametric solutions can help where traditional markets struggle, particularly with natural catastrophes,” he says. “There are often restrictive limits when it comes to extreme weather events. Bridging the gap can mean transitioning to alternative markets, such as securitisation or captive insurance structures.” 

By involving stakeholders early on, collaborating and being more transparent with critical information, the entire construction and insurance ecosystem can align around a shared understanding of risk. This fosters innovative solutions and ensures projects will have the right protections in place as the risk landscape evolves. 

As the industry moves towards greener building solutions, proactive risk management is essential. For more insights on managing risks in sustainable construction, contact Aon’s specialist team today. 

Vincent Banton
Head of Construction & Infrastructure, Asia
+65 8112 6875
vincent.banton@aon.com