Parametric Can Help Mitigate Extreme Heat Risks for Contractors in EMEA

Parametric Can Help Mitigate Extreme Heat Risks for Contractors in EMEA
Construction and Infrastructure

06 of 08

This insight is part 06 of 08 in this Collection.

March 15, 2024 21 mins

Parametric Can Help Mitigate Extreme Heat Risks for Contractors in EMEA

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Construction projects in EMEA are often impacted by extreme heat, leading to project delays and increased costs. Many heat exposures are excluded by traditional markets, however, parametric is a flexible solution that can help mitigate these risks.

Key Takeaways
  1. As climate change continues to impact EMEA temperatures, construction project delays and increased costs will remain issues for contractors and building owners.
  2. During extreme heatwaves, projects involving physical labor take 36 percent longer on average to complete.
  3. Parametric insurance is critical to construction risk strategies because of its broad scope, flexibility, and fast and transparent claim settlements.

Extreme heatwaves, fueled by climate change, represent one of the most pressing challenges for the construction industry in Europe, the Middle East and Africa (EMEA).

The most devastating impact is on human health and life, with heat-related deaths surpassing those of any other weather-related danger. This is accompanied by significant indirect health issues, such as respiratory failure, cardiovascular disease and heat stroke.

Like other parts of the world, EMEA has experienced the dire consequences of extreme heat. Aon’s 2023 Weather, Climate and Catastrophe Report highlights two separate major heatwaves in the region in June and July of 2022. These affected hundreds of millions of people, leading to nearly 20,000 heat-related fatalities, as derived from excess mortality rate data.

From a business standpoint, extreme heat creates widespread issues, affecting operations, productivity and employee wellbeing. When temperatures reach unsafe levels for workers, the construction process is delayed, and subsequently, costs rise.

In fact, during extreme heatwaves, construction projects involving physical labor take 36 percent longer on average to execute. This will only grow more severe, as climate change continues to impact temperatures and the average age of the construction workforce continues to rise (from 40.5 in 2015 to 42.5 in 2022).1

In most countries around the world, however, legislation is not specific about what is considered an acceptable range for temperature conditions at work, especially outdoors. Only sometimes does national legislation provide a range of acceptable temperatures for specific circumstances.2

The majority of European countries, too, have no legal maximum working temperatures or heat protection regulations (although most include labor laws requiring workers to be comfortable or safe).

Here is a snapshot of extreme heat labor laws in select EMEA countries:

  • France
    • There is no set maximum temperature to work in; employers must ensure safe conditions.
  • Germany
    • Employers are required to ensure workers can proceed safely with their activities when temperatures exceed 26 degrees Celsius and provide drinkable water at 30 degrees Celsius.
  • Italy
    • There is no set maximum temperature to work in; workers can halt work if conditions are unsafe.
  • Portugal
    • Workplace temperatures must be 18-22 degrees Celsius, with humidity at 50-70 percent.
  • Spain
    • Work that requires light physical effort should be performed in temperatures between 14 and 25 degrees Celsius.
  • UK
    • Like many European governments, the UK has no maximum working temperature provisions.
    • In 2022, the General, Municipal, Boilermakers' and Allied Trade Union, which represents workers from a range of sectors, called on the government to introduce “too hot to work” legislation at 27 degrees Celsius for those doing strenuous jobs. It also requires employers to provide sun protection and water.
  • United Arab Emirates
    • The UAE prohibits employers from forcing employees to work outdoors between 12:30 and 3 p.m., from June 15 to September 15, which is the hottest time of day.
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Parametric insurance allows clients to access alternative capital to enable the transfer of a whole myriad of measurable exposures not met by the traditional insurance market.

Jon Chapman
Head of Construction and Infrastructure, EMEA

Unlike acute perils, the full impact of chronic perils, like extreme heat, are often cumulative and difficult to measure, leaving a potential protection gap. While traditional insurance markets address physical damage, the economic implications faced by clients, including business interruption and loss of employee income, are often more substantial.

How Parametric Solutions Can Help

Parametric insurance is complementary to traditional insurance solutions. It can be used in situations like extreme heat, where a risk must be mitigated and may not be covered via traditional markets.

Unlike traditional insurance, parametric coverage is triggered by predefined parameters, providing quicker and more transparent claim settlements. With its flexibility and broad scope, parametric insurance helps bridge the protection gap, making it an ideal alternative risk transfer solution in catastrophe-prone areas — and in areas where extreme heat is an issue.

“Parametric insurance allows clients to access alternative capital to enable the transfer of a whole myriad of measurable exposures not met by the traditional insurance market.” says Jon Chapman, head of Aon’s construction and infrastructure practice in EMEA. “It creates an avenue for additional capacity for issues that are not covered by traditional insurers and another source for clients to address volatility.”

Parametric takes an “if-then” approach. As more risk managers rethink their risk resilience, this method complements and supplements traditional insurance, paving the way for an innovative and transformative, yet straightforward solution, perfectly suited for catastrophic events.

Here’s how the core mechanics of parametric insurance work:

  • The “if:” Parametric insurance stands out due to its coverage trigger and pre-agreed payouts. Underwriting is simplified as coverage is activated by the occurrence of an independent event, as determined by neutral third-party data providers.
  • The “then:” With the independent data trigger and pre-agreed amounts, recoveries occur swiftly — often within days or weeks of an event. This quick access to capital is critical for businesses that need immediate financial assistance following an event.
  • Solving the protection gap: Parametric insurance offers broad coverage, ensuring that any economic exposure arising from an event can be insured. Previously uninsurable exposures become insurable, with the parametric trigger acting as the missing link to unlock flexible capital.

Parametric Benefits for Construction Stakeholders

For Contractors For Building Owners

Reduces contingencies in contract prices

Mitigates income loss from delays to commercial operations dates

Enables worker wellbeing

Enables worker wellbeing

Facilitates access to capital — Parametric may cover additional costs to help keep projects on schedule

Facilitates access to capital — Parametric may cover additional costs to help keep projects on schedule

Includes possible liquidated damages for delays and associated expenses

Ensures debt service is met in case of Cost of Delay (CoD) delay

3 Ways to Take Action

The escalating risks posed by extreme heat in the construction industry demand proactive and innovative risk management strategies. To adapt and thrive through these heat-related challenges, it's crucial for construction companies to act now. Start by following these three steps:

  • 1. Use forward-looking data and analytics

    This includes weather data and heat tracking tools to understand the projected impacts of extreme heat on the business and its employees. By gaining insights into future risks, including temperature trends, heat indices, humidity levels and other environmental factors, firms can proactively implement preventive measures to safeguard operations and ensure the wellbeing of their workforce.3

  • 2. Prioritize workforce health and wellbeing

    Implement measures to reduce heat-related health risks. Create a heat illness prevention strategy that plans ahead to protect workers, and encourages water, rest and shade.4

  • 3. Collaborate with experienced brokers and explore alternative solutions

    Ensure brokers specialize in mitigating risks in the construction industry and consider alternative solutions like parametric insurance. By partnering with knowledgeable professionals, companies can tailor their risk management strategies to their specific needs, enhancing resilience to extreme heat events.

Aon’s Thought Leaders
  • Vincent Banton
    Head, Construction and Infrastructure, Asia
  • Jon Chapman
    Head of Construction and Infrastructure, EMEA
  • Cole Mayer
    Global Head of Parametrics, Aon
  • Tariq Taherbhai
    Global CCO, Construction and Infrastructure
  • Tamara Trotman
    Head, Construction and Infrastructure, Australia

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

Terms of Use

The contents herein may not be reproduced, reused, reprinted or redistributed without the expressed written consent of Aon, unless otherwise authorized by Aon. To use information contained herein, please write to our team.

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