IAIN DRENNAN: There is a trend. And everyone's moving towards an improved ESG future.
TIM COTTON: It's never ideal for my commute around Melbourne here. There's always a lot happening.
IAIN DRENNAN: Just helping our clients understand their own risks more completely.
TIM COTTON: Hello and welcome to our WTW podcast, a Smarter Way to Risk down under in Australasia edition, a new series where we will cover a range of global and local complex risk topics, and how we at WTW are committed to delivering the best outcomes for clients through managing risk in a smarter way.
I'm your host, Tim Cotton. And throughout this series, I'm going to bring in a variety of my WTW colleagues here in Australasia, who have expertise and specialism in different areas of risk, who will all provide their own perspective on what a smarter way to risk means to them and their area of the business.
Now today, I'm delighted to have with me Iain Drennan, our Head of Construction here in Australasia. Welcome, Iain. It's great to have you with me today.
IAIN DRENNAN: Yeah. Thank you, Tim. I'm delighted to be here, and even more delighted to be the first one up on this brand new podcast. It's exciting.
TIM COTTON: No pressure, Iain. First one up. There's no pressure whatsoever. I find construction a really interesting one, because there's so much happening at the moment in that industry. And really, ever since the pandemic, there's been never ending legislation changes, big name companies have been collapsing. And there's been all sorts of challenges that the industry has been faced with.
But before we get into that and more, Iain, just for those listeners that might not know much about you, could you tell us a bit about yourself, your role at WTW, and a bit about our construction specialism business?
IAIN DRENNAN: Absolutely, Tim. So I look after our Australasian construction practice, covering Australia, New Zealand, and the Pacific Islands. And my team services clients across the full spectrum of the construction industry, right from residential builders to high volume residential builders, general commercial builders, civil contractors, government and large client entities looking to build large, major projects in excess of 1 billion Australian dollars.
And then through some specialist insurance requirements, like legislative requirements, we have a team dedicated to providing home builders warranty and insurance services for those residential builders. and we provide builders with an alternative to drawing down on their bank guarantee facilities by way of utilizing surety bonds, which massively improves their cash flow.
But as you say, it has been a very, very interesting time in the building industry for the last two or three years. There's a lot of challenge. But any Australian driving around the country would have seen the volume of construction activity that's been going on in the past decade, be it roads, rail, airport, commercial skyscrapers, revitalising our CBD locations.
TIM COTTON: It's never ideal for my commute around Melbourne here. There's always a lot happening. It always makes the drive a lot slower. But I completely understand with that one, yeah.
IAIN DRENNAN: Exactly. Exactly. If you're a cab driver five years ago in the centre of Sydney, it's the light rail system that messed up their business model for a time. But it's built and everyone's happy.
TIM COTTON: So I guess, from what I'm hearing, within the whole construction industry itself, which is a very large industry, as we know, you guys almost specialise in subindustries within the entire construction industry. Is that a fair call?
IAIN DRENNAN: Absolutely. Well, we're a team of 36 strong, but there are segments within our team where people choose to specialise. And it's that specialism that really allows us to service clients across the genuine full spectrum of the construction industry, Tim.
TIM COTTON: I'll ask you the pointed questions up front then, as we refer to the theme of this podcast series, A Smarter Way to Risk. How do you guys manage risk smarter? What is a smarter way to risk mean to you and your clients?
IAIN DRENNAN: At a really basic level, Tim, it's just helping our clients understand their own risks more completely, plus informing them of industry and market trends that pose either an additional risk to what they're used to, or indeed offers them an opportunity. But what I would say is, our clients are all at different levels of sophistication. And it's not hugely correlated to their size, or their industry segmentation.
It really does come down to what their individual business imperatives might be, what specific market conditions and their industry segment might be, or their business culture that's been around for ever and a day. Everyone's unique. And we try and ensure that we offer advice to greater or lesser degrees, driven by the client imperatives.
TIM COTTON: And a big part of our value proposition here at WTW is the way we utilise data and analytics to make the best possible decisions on behalf of our clients. Could you elaborate on how our construction team do this in practice?
IAIN DRENNAN: Yes. So the two circumstances where we can provide that value add to our clients. Now, if we're talking about a client's annual insurance program. First of all, we offer them in-depth loss modelling to identify trends within their business that are driving their losses. And the two factors that drive premiums for clients, including the availability of broader coverage, is their loss history, how much insurers are paying, and the size of their business.
So, obviously, the bigger the client gets, the happier they are. But if their losses are also increased, then they're going to be paying more money. And we want to be able to nip that in the bud. And once we've identified those areas that are driving claims activity, our risk engineering team can work with the client to actually come up with mitigation strategies to help eliminate, or at least mitigate those factors.
A client's insurance program never stays static. Their business exposures are always changing. So we offer all of our clients complimentary gap analysis. And we overlay the breadth of their insurance programs against their enterprise risk register to let the boards know what is covered, what is partially covered, and what's an uninsured exposure. And work with them to understand whether their insurance program can do more to reduce risks within their business.
We also-- and this has never been more pertinent to clients. We offer them a financial impact analysis through our risk and analytics team. And that allows our-- that models potential loss scenarios that can hit multiple classes of insurance, and create one event creating multiple claims, and what the likelihood of that is, and what the respective uninsured exposures are at a very basic level with their excess levels per policy.
Across three or four policies, you could easily get into multi millions worth of dollars of self-insured retention, whether the balance sheet can accept that.
Once that client's been awakened to what the potential exposure is, we can then work with them to tailor their program more appropriately. And sometimes that can mean increasing their self-insured retentions, because they've got the balance sheet to support that, or indeed the exact counter opposite of making sure that they're financially viable and can retain the risk that is being imposed upon them by the insurance market.
When we're talking about major projects, we have a proprietary tool called global peril diagnostics, which allows us to model the likelihood of major natural catastrophe events impacting a specific project at its location. It could be a linear project, road, rail, or it can be a localised exposure.
We've got a lot of new renewable energy zones that are coming up. Although, they seem quite large. If you're talking about a cyclonic area, hundreds and hundreds of kilometres can be impacted by one event. So allowing our clients to understand the likelihood of natural catastrophes impacting their projects. And indeed, with the changing weather conditions, it informs them of how they go about insuring their risk, retaining some element of self-insured risk. But also, what's available in the insurance market is changing, particularly in natural catastrophes. Capacity is reducing in those areas in the form of sub limits. And the more the clients are aware of the potential exposures, the better.
TIM COTTON: Thanks, Iain. That was really comprehensive. And I was noting a few things down as you were talking, that that modelling sounds really sophisticated and personalised per client, which I think is awesome. I really think that would resonate with so many people out there. And also, I love the gap analysis, or the health check every year or two. I can't remember. How often did you say we do that?
IAIN DRENNAN: We would say every three years, subject to the clients updating their own risk registers. Because that is the foundation of the analysis, because not all items, particularly commercial risk, are insurable.
TIM COTTON: That's so important, though, that whole aspect to it. Because the world is changing so quickly, and so much changes, and things can come out of date very quickly. So I think that's so important. I think it's a great thing we do.
Hey, you covered on global outreach a bit there, and global networks. I wanted to touch on that a bit more now. Because I believe-- well, I know for a fact, we've got a global line of business, the construction. So you guys align into that. And I think you even report into our head of construction who's based in the US as well.
So obviously you're connected over there. How do we ensure our clients are receiving all the benefits and more of this global network? Is it a matter that we can tap into alternative insurance markets that wouldn't ordinarily be available? Or what are some of the major benefits that they're getting, and how do we make sure our clients get benefits from this global network?
IAIN DRENNAN: Yeah, sure. So construction was the first global industry vertical, which we call global lines of business to be created within WTW. We're very proud to be that. And yes, Bill Creedon, my direct line manager, is based in Denver in the US.
I'm one of five global executives within the GLOB, we call it, for short. And we meet up on a fortnightly call, and we simply share knowledge. That's a major component that benefits our clients, is the knowledge of what's going on globally and industry trends. Because we are able to arbitrage opportunities with insurance markets by accessing them in different points around the globe.
Without that connectivity within the executive GLOB team, we wouldn't be able to bring that benefit to our client. In a similar way, we have people within my team that connect with their counterparts globally in respect of coverage developments, pricing developments, market movements, etc. etc.
So as an example, we are acutely aware that, in Australia, our clients-- or Australia and New Zealand, and the Pacific, I'd add. Sorry. That more opportunities than have been available in the past five years exist for them outside the Australian domestic insurance market. That includes Singapore, and particularly London.
The appetite for Australian construction risk is at a five-year high. And we're anticipating that to increase over the next two to three years, which brings benefits to our client of increased competition, which, as we know, drives a competitive environment in respect of coverage and pricing.
TIM COTTON: Yeah, that's exciting for our region. I know we covered a lot at the start of our chat about some of the challenges that the construction industry has been facing holistically. But if you could narrow it down to a top two or three, what would you say are the hottest or the most prevalent risks associated for the industry at the moment, and how are our team approaching it? Tough question I know, but-- yeah. I'll put you on the spot with that one.
IAIN DRENNAN: That's OK. So if we're talking about material damage exposure, Australia has always been a country prevalent to natural catastrophe events. We're just forecasting to go into quite a severe bushfire season, given the lack of precipitation in the last six to nine months, and the El Nino effect, which is obviously worrying.
So bushfires are a concern. Flooding in Queensland and far north, New South Wales, has been a concern. And if you're above the 26th parallel, we have always traditionally been exposed to cyclones.
Now, that's not new. What is new is that the claims that have been paid out over the past five years in respect of those events have hit the insurance industry harder than anticipated. And they are reacting accordingly. And that can mean anything from increased pricing to cover those risks, to sublimits available for those risks, or areas of coverage that are specifically excluded or partially excluded in the specifics of the wording.
So we're working with our clients for them to understand what the likely insurance transfer solution would be for them, for their upcoming project, or indeed, their portfolio of risk for their forthcoming renewal. So that they're forewarned, and therefore forearmed. And we're having to come up with some slightly left field alternative risk transfer solutions to ensure that they're kept whole from a risk transfer perspective.
And it really does change that solution on a client-by-client basis. But a traditional straight insurance transfer that existed three years ago, in respect of those particular Nat Cat exposures, no longer exists in some instances.
TIM COTTON: Do you see anything coming for 2024 and beyond that might be new, or some emerging risks that you think the industry really needs to be aware of, or what's coming?
IAIN DRENNAN: There is a trend. And everyone's moving towards an improved ESG future. So we are starting to see around the world-- and in asphalt production in Australia for a long time, we've used recycled glass and other recycled materials. But we are anticipating building materials looking to enhance their green credentials, accelerating in the immediate future.
And the impacts of what that would have on the insurance cover available. And I say that because anything considered or deemed to be prototypical in nature tends not to be the flavour of the month for the insurance market.
So I see that as an emerging trend, not necessarily a risk, but something we'll need to navigate as we all look to move towards a greener future.
TIM COTTON: Yeah. Indeed. Well, Iain, I think that's all we've got time for today. So it's been great chatting with you. I really appreciate those insights you provided, and I'm sure our listeners have as well.
Obviously, you and I work quite closely on various client initiatives throughout the year. So I get to see first-hand some of the great work your team are doing for the industry. And it's always a pleasure working with you guys. We'll talk soon. And for our listeners, until next time, it's bye for now.
IAIN DRENNAN: All right, Tim. Thanks very much for having me.
TIM COTTON: If you'd like to hear the remainder of our Smarter Way to Risk podcast series, we encourage you to stay tuned on our WTW website, follow us on LinkedIn, and listen to our latest content wherever you listen to your podcasts.
