Globalisation is never far from the headlines. Against a shifting geopolitical backdrop and a slowdown in global trade, construction companies are looking to new areas and emerging economies to achieve growth. Meanwhile, laws and regulations around the world are constantly changing. In times of uncertainty, a coordinated approach to risk management and risk transfer is key.
After a period of contraction following the economic crisis of 2008, the Spanish construction industry is once again in a growth phase and is forecast to post output growth of about 5.5% in 2017. And Spanish construction companies have been at the forefront of overseas expansion. Spanish companies, or Spanish-led consortia, have been involved in some of the world’s biggest and most complex construction projects, such as the recent expansion of the Panama Canal.
Experts from XL Catlin’s Iberia operation discuss some of the risks and opportunities involved in these projects.
Are Spanish companies continuing to invest in infrastructure projects overseas? How important is a coordinated risk management approach for these projects?
José Ramón Morales, country manager, insurance, Iberia: Spanish companies will continue with construction projects abroad particularly in Latin America and the US. There has been exponential growth in construction deals abroad since the early 2000s. Overseas projects will continue to be a focus for the Spanish construction industry.
Francisco Triviño, property underwriting manager Iberia and Latin America: The risk manager’s role is becoming more relevant in major construction companies. Coordinating insurance contracts from head office is becoming more important for these companies. So it is critical that insurers are able to provide global solutions that are compliant and consistent across all markets they are operating in.
At the moment the insurance market is competitive and price is key for buyers, but information, service, and assessment of compliance are also very important aspects of the insurance-buying decision. Construction projects can last for 18 months or more and a lot can change in that time – both for the company and also for society. We need to have the most up-to-date information to provide the right cover. So we work closely with our Global Programs Center of Excellence team and monitor how regulations and taxes are changing around the world.
How can some of the financial risks involved with overseas constructions projects be managed and how can risk managers avoid pitfalls when securing coverage?
Ana Dores, senior financial lines underwriter, insurance, Iberia and Latin America: Sometimes when a client is bidding for a project we are asked to give an idea of how much professional indemnity insurance will be needed. We like to have discussions with them at an early stage. But in many cases clients buy professional indemnity insurance purely because they are required to do so by the terms of the deal. Sometimes companies sign a contract and then it becomes clear that some of the clauses increase their liabilities – and in some cases make them uninsurable.
So, ideally, we would be involved in discussions as early as possible. International insurers can offer comprehensive coverage and access to global expertise to ensure that coverage is relevant and comprehensive. This is where brokers have an important role to play in advising their clients.
Are there specific risks and opportunities associated with public-private partnership projects (PPP)?
Ana Dores: There can sometimes be some complications with PPP projects because, while typically our clients would design and build a facility and then that would be the end of the project, in PPP projects they may be given the option to operate or manage the facility after it is completed. This can be complex for insurers, because, the entity which caused the loss – the design & construction company – is the same entity that will discover the loss on behalf of the principal.
What extensions or endorsements can risk managers obtain to transfer some of the risks associated with overseas construction projects?
José Ramón Morales: As well as coverage for risks including construction and erection, general liability and professional indemnity, buyers can purchase contractors professional and pollution liability insurance to cover environmental risks – or this can be added as an endorsement. We also can offer terrorism coverage – either embedded within a policy or as an endorsement. We are also working on whether kidnap and ransom could be offered as an endorsement; currently we can offer this as a separate policy. Buyers can also add operational coverages such as business interruption.
What does the future hold for international infrastructure projects – for example, what are some of the opportunities for Spanish companies seeking to invest abroad? How will insurance programmes develop to transfer some of the risks associated with these projects?
Francisco Triviño: Expansion is going to continue. Companies are going to Australia, north Africa, the Middle East and elsewhere.
Ana Dores: Our clients will keep going to areas where governments are investing or where private sector companies are funding projects. There has been a slowdown recently in activity in the Middle East because of the recent fall in the oil price, but the good thing for our clients is that they are used to investing in new and different locations. They are international and adaptable.