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

07 of 08

This insight is part 07 of 08 in this Collection.

March 15, 2024 8 mins

Parametric Can Help Mitigate Extreme Heat Risks for Contractors in EMEA

Parametric Can Help Mitigate Extreme Heat Risks for Contractors in EMEA Hero Banner

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.
Quote icon

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
Practice Leader, Construction & Infrastructure, Europe, the Middle East and Africa

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 of Construction & Infrastructure, Asia Pacific
  • Jon Chapman
    Practice Leader, Construction & Infrastructure, Europe, the Middle East and Africa
  • Cole Mayer
    Global Head of Parametrics
  • Tariq Taherbhai
    Global Chief Commercial Officer, Construction & Infrastructure
  • Tamara Trotman
    Head, Construction and Infrastructure, Australia

1 ‘Adaptation Cost Of Anguish’: How Extreme Heat Is Slowing Down Construction (bisnow.com)
2 https://oshwiki.osha.europa.eu/en/themes/heat-work-guidance-workplaces
3 https://www.heat.gov/pages/tools-information
4 https://www.osha.gov/heat

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.

Aon's Better Being Podcast

Our Better Being podcast series, hosted by Aon Chief Wellbeing Officer Rachel Fellowes, explores wellbeing strategies and resilience. This season we cover human sustainability, kindness in the workplace, how to measure wellbeing, managing grief and more.

Aon Insights Series Asia

Expert Views on Today's Risk Capital and Human Capital Issues

Aon Insights Series Pacific

Expert Views on Today's Risk Capital and Human Capital Issues

Aon Insights Series UK

Expert Views on Today's Risk Capital and Human Capital Issues

Client Trends 2025

Better Decisions Across Interconnected Risk and People Issues.

Construction and Infrastructure

The construction industry is under pressure from interconnected risks and notable macroeconomic developments. Learn how your organization can benefit from construction insurance and risk management.

Cyber Labs

Stay in the loop on today's most pressing cyber security matters.

Cyber Resilience

Our Cyber Resilience collection gives you access to Aon’s latest insights on the evolving landscape of cyber threats and risk mitigation measures. Reach out to our experts to discuss how to make the right decisions to strengthen your organization’s cyber resilience.

Employee Wellbeing

Our Employee Wellbeing collection gives you access to the latest insights from Aon's human capital team. You can also reach out to the team at any time for assistance with your employee wellbeing needs.

Environmental, Social and Governance Insights

Explore Aon's latest environmental social and governance (ESG) insights.

Q4 2023 Global Insurance Market Insights

Our Global Insurance Market Insights highlight insurance market trends across pricing, capacity, underwriting, limits, deductibles and coverages.

Global Risk Management Survey

Better Decisions Across Interconnected Risk and People Issues.

Regional Results

How do the top risks on business leaders’ minds differ by region and how can these risks be mitigated? Explore the regional results to learn more.

Top 10 Global Risks

Trade, technology, weather and workforce stability are the central forces in today’s risk landscape.

Industry Insights

These industry-specific articles explore the top risks, their underlying drivers and the actions leaders are taking to build resilience.

Human Capital Analytics

Our Human Capital Analytics collection gives you access to the latest insights from Aon's human capital team. Contact us to learn how Aon’s analytics capabilities helps organizations make better workforce decisions.

Human Capital Quarterly Insights Briefs

Read our collection of human capital articles that explore in depth hot topics for HR and risk professionals, including using data and analytics to measure total rewards programs, how HR and finance can better partner and the impact AI will have on the workforce.

Insights for HR

Explore our hand-picked insights for human resources professionals.

Workforce

Our Workforce Collection provides access to the latest insights from Aon’s Human Capital team on topics ranging from health and benefits, retirement and talent practices. You can reach out to our team at any time to learn how we can help address emerging workforce challenges.

Mergers and Acquisitions

Our Mergers and Acquisitions (M&A) collection gives you access to the latest insights from Aon's thought leaders to help dealmakers make better decisions. Explore our latest insights and reach out to the team at any time for assistance with transaction challenges and opportunities.

Natural Resources and Energy Transition

The challenges in adopting renewable energy are changing with technological advancements, increasing market competition and numerous financial support mechanisms. Learn how your organization can benefit from our renewables solutions. 

Navigating Volatility

How do businesses navigate their way through new forms of volatility and make decisions that protect and grow their organizations?

Parametric Insurance

Our Parametric Insurance Collection provides ways your organization can benefit from this simple, straightforward and fast-paying risk transfer solution. Reach out to learn how we can help you make better decisions to manage your catastrophe exposures and near-term volatility.

Pay Transparency and Equity

Our Pay Transparency and Equity collection gives you access to the latest insights from Aon's human capital team on topics ranging from pay equity to diversity, equity and inclusion. Contact us to learn how we can help your organization address these issues.

Property Risk Management

Forecasters are predicting an extremely active 2024 Atlantic hurricane season. Take measures to build resilience to mitigate risk for hurricane-prone properties.

Technology

Our Technology Collection provides access to the latest insights from Aon's thought leaders on navigating the evolving risks and opportunities of technology. Reach out to the team to learn how we can help you use technology to make better decisions for the future.

Trade

Our Trade Collection gives you access to the latest insights from Aon's thought leaders on navigating the evolving risks and opportunities for international business. Reach out to our team to understand how to make better decisions around macro trends and why they matter to businesses.

Transaction Solutions Global Claims Study

Better Decisions Across Interconnected Risk and People Issues.

Weather

With a changing climate, organizations in all sectors will need to protect their people and physical assets, reduce their carbon footprint, and invest in new solutions to thrive. Our Weather Collection provides you with critical insights to be prepared.

Workforce Resilience

Our Workforce Resilience collection gives you access to the latest insights from Aon's Human Capital team. You can reach out to the team at any time for questions about how we can assess gaps and help build a more resilience workforce.

More Like This

View All