There is a consensus that the hard market cycle, which has been experienced for many years, seems to finally be closing in the construction insurance market and in the insurance industry as a whole. However, we are still confronting some rate pressures associated with concerns in relation to inflation and interest rate uncertainty, resulting from another record year of catastrophic events in 2023.
According to the latest Natural Catastrophe Review released by WTW, for the fourth consecutive year, 2023 saw global insured losses exceed $100 billion, with a total economic loss surpassing $350 billion.[1] Such loss levels are becoming the norm, not the exception. As a result, underwriting scrutiny, increases in pricing and limited capacity in Nat Cat exposed areas, with special attention on secondary perils such as convective storms, wildfires, droughts, and floods, will continue. However, these are not as adverse as seen in past years due to favorable CAT bond performance creating investor confidence and capital.
$100B for the fourth consecutive year 2023 saw global insured losses exceed $100 billion
Stricter technical underwriting criteria and discipline is now well adopted, and markets have become much more predictable on coverage offered, less volatile in their responses and more confident about pricing adequacy. We will continue to see an improvement in combined ratios and a stable rate environment. However, rising claims costs will likely also impact markets’ profitability particularly in key cost factors such as healthcare, construction materials, workforce and litigation and some insurers may struggle to maintain rates and perhaps not raise pricing fast enough to cover record growth in expenses.
In 2024, activity and growth in the construction industry will be led by large scale government spending supported by private investment in infrastructure (both aging and new), including roads, railways, airports, ports, and urban mobility projects. In the energy sector, construction growth will predominantly be in renewables due to the pace of population growth, the increasing need for accessible and reliable energy supply and to comply with countries' decarbonization plans.
We also expect heavy investment in manufacturing particularly in the technology sector with many projects expected to commence construction work this year including semiconductors, giga factories and datacenters across various regions most notably in North America, Latin America and Europe.
However, there is the expectation that construction activity will retract in 2024 in some countries in Europe and in Australia as many projects are put on hold due to the increased construction costs for projects as a result of economic factors including high inflation, elevated interest rates and labor shortages.
Overall global infrastructure construction output will grow at an annual average rate of 5.2% in 2024 to 2027, following the expansion of 10.7% in 2023.
The energy and utilities sector will expand an annual average rate of 5.2% in 2024 to 2027, while the industrial sector will grow by 3.6%.
This growth will be offset by the weakness in the residential sector, which is estimated to have contracted by 4.5% in 2023 and will decline further by 4.6% in 2024 before edging up slowly. The commercial sector will fare better, with growth of 3.2% expected in 2024 to 2027, but by 2027 it will only be 5% higher than in 2019.[2]
There are some consistent and specific insights for all geographies that can be garnered by the commentary provided in this document.
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