Traditionally, the development of risk management plans is tailored to address assessed and quantified risks. There is however always the ‘the unknown factor’. Enter the COVID-19 pandemic. Of course, we have faced localised pandemics before, but never one on such a globally synchronous scale, thanks to global travel and trade. It propelled the entire world into unchartered territory as mass economic and travel lockdowns were implemented, and contingency plans were hurriedly rolled out.Â For many industry sectors and businesses already teetering on the brink, it has been a crisis of unprecedented scale - a black swan event that simply cannot be quantified or dealt with, without the benefit of hindsight.
According to Michael Viterenwa, Senior Broker in Aon South Africa’s Construction & Engineering Broking Centre, Government is the biggest spender on infrastructure in SA’s construction industry. “With the onset of our national lockdown, government diverted infrastructure spending to alleviate the economic and social crisis facing the country, cutting traditional expenditure by 80%.Â This brought a large portion of the country’s economy, including the construction industry, to a grinding halt.Â At the same time, restrictions on construction activity under lockdown regulations added further pain.Â Projects were left standing, deadlines were missed â€“ the consequences of which are enormous.” Â
Viterenwa goes on to detail some of the emerging and concerning trends impacting the construction industry â€“ and while many existed prior to Covid-19 - they are now exponentially amplified:
To say that times are incredibly tough and uncertain would be a gross understatement. In a bid to cope, many construction companies have cut capex by 50% â€“ 60%, jobs have been cut, work hours have been reduced and property rentals in industrial and commercial properties are likely to never return to pre-COVID levels as remote working becomes part of the new normal.Â
“Construction companies, landlords, developers and contractors will need to explore ways of managing the impact and complexity of a radically changed environment.Â It is vital to engage with all relevant parties to renegotiate contracts and clauses. These may include authorities, owners, lenders, contractors, subcontractors, suppliers, clients, and so on.Â Aon Global Risk Consulting (AGRC) has been working with organisations to identify, assess and quantify the short- and long-term impact of Covid19 on construction projects which can then be used as a basis for negotiation with external stakeholders and help communicate the situation internally,” Michael explains.
To this extent, the approach consists of:
Insurance matters related to projects that are still on the go remains a concern. “Many companies are opting not to renew their insurance policies due to cost-cutting, which could be detrimental to their operations on projects that are still in progress. Companies have a legal obligation to ensure that cover is maintained up to the conclusion of a project, as the financial and liability repercussions could be catastrophic if anything should go wrong,” Viterenwa urges.
“The industry will pick up in the coming months and we are already seeing a commitment from Government to infrastructure spending, and positive signs on the energy front with a determination by mineral resources & energy minister Gwede Mantashe to procure 11.8GW of additional electricity in the coming years from Independent Power Producers. Â Government has also committed to expedite the implementation of at least 50 infrastructure projects with a total investment value of more than R340 billion in the coming months as part of South Africa’s economic recovery plan.
“It is crucial that construction companies maintain their covers and conditions of cover as far as possible. As reinsurers and insurers prepare for their major renewal season in January 2021, they may find that they will not have access to the same type of cover, pricing and terms and conditions from insurers that they have now. A conversation with a professional broker that specialises in construction risk is crucial in order to anticipate any changes in policy wording, terms and conditions, pricing and potential exclusions Â to maintain a workable and affordable level of cover during these trying times, and to avoid the potential for costly and potentially uninsurable liabilities,” says Michael.
As a key driver of South Africa’s economy, and a key pivot in the country’s post-COVID recovery, more than ever the industry sector needs to maintain and grow its resilience and embrace change to emerge leaner, focused, having mastered new technologies and a new world of work in a very different new normal. Suitably scoped insurance and risk management practices remain fundamental to being able to embrace risks for the opportunities they present in the coming months. Â