The Construction Data Journey: Start Now!

Whether you are an owner, a design firm, or a contractor, the construction sector will be facing several major challenges in the coming years. Whether it is financial risks like economic slowdown, cash flow/liquidity risk, or capital availability/credit risk, or it is labor risks like workforce shortages, failure to attract the best talent, worker injury or the risk of massive retirements in near term, the construction sector needs to start implementing solutions that will prevent and mitigate some of these major risk categories. Download this article to learn how to begin building a sound data strategy to mitigate these very real current and future risks.

The Silver Lining of a Hardening Market: NextGen Risk Finance Is Here

In the 3rd quarter of 2018 our Global Construction & Infrastructure Group issued a paper titled “The Many Strategic Roles of a Construction Captive.” In that paper we outlined seven strategic roles a captive can play within the global construction industry, including allowing more control over insurance pricing and capacity shocks. Since issuing that paper, several key insurance lines associated with the construction sector have undergone mild to moderate firming (evidenced by higher pricing and reduced coverage). In this article, we spotlight not only how captives are being deployed to mitigate the impact of the hardening market, but how data and analytics are changing the narrative around captives and how they are assessed and leveraged by companies through all market conditions.

Firming in the Construction Insurance Market Place

Risk control and risk finance, interlinked, create a cycle of continuous improvement in risk management. With trends leading to the deterioration of risk control and firming of the risk finance market, contractors are challenged to keep abreast of the factors contributing to market tightening -- from lagging technology adoption, to labor shortages and low margins – and prepare to demonstrate to insurers how their firm or project is addressing todays’ challenges with strong risk controls. Download this article to learn more about the trends from within the construction sector that appear to be driving market firming and what organizations can do to improve their risk management platform to address this issue.

The “Level-Playing Field” Assumption – A “Go or No-Go” Cautionary Tale

When bidding on new projects, construction companies must be aware of the competitive advantages and disadvantages they face in key areas – from contractual models and operational practices, to the use of technology, engineered solutions, construction materials, and supply chains. Examining where you stand versus competitors in a dynamic market place will help you sharpen your competitive edge and win profitable business for your firm. Download this article to learn more about how firms can be more diligent when it comes to assessing the “right job” for their company to pursue.

The Many Strategic Roles of a Construction Captive

A captive, an insurance company created and wholly owned by one or more non-insurance companies to insure the risk of its owner(s), has the potential to provide construction firms with risk capital that can improve productivity, profitability and project outcome certainty. From providing some level of protection against hard insurance markets to more efficiently pricing contingencies, captives offer construction firms much more than just tax efficiency. Over the next few months, the Aon Global Construction & Infrastructure team will present a seven-part series detailing the top strategic uses for captives in construction. Continue here for a preview of each of the topics that will be addressed in the upcoming series.

How Technology Can Address the Construction Productivity Gap

That the construction industry lags behind most other industries in terms of technology adoption and digitization that has to the potential to lead to significant productivity gains has been a common refrain for years. However, technologies addressing specific construction needs have recently begun to attract the investor attention that they deserve. According to PitchBook Data, construction technology brought in more than $1.6 billion in venture capital investment in 2017 and 2018. New technologies that leverage innovations like computer vision and artificial intelligence promise to help boost productivity by controlling the biggest risks that cause delays and losses on projects. Read more about how new technologies are addressing productivity and risk management in the construction space.

Rectification Coverage: Additional Protection to Address Design Errors

Contractors that assume the role of design-builder on a project take on significant responsibilities to the project owner. These include the design, construction, management, and delivery of a complete and functional project when turned over to the owner. Design risks are inherent in all construction projects, and rectification coverage provides first party coverage to address these risks during construction. This coverage provides the necessary funding to correct design errors that arise during construction that, if not corrected, would likely lead to a claim down the road. Keep reading to see how rectification coverage could play an important role in your next design-build project.

Managing Political Risk in Latin America

Latin America is experiencing a marathon of presidential and legislative elections this year that are likely to bring in new administrations tasked with deciding the direction to take their infrastructure development programs. At the same time, demand for privately financed infrastructure in the region is continuing at a steady clip of about $50 billion per year. Many of the newly formed governments will be facing global financial pressure to reform their fiscal house, while others have slipped into political violence; all of which is adding uncertainty to contractors and investors looking to expand operations in the region. Learn about the current developments and potential risk transfer solutions that can help manage and mitigate political risk in Latin America.

P3 Office Procurement Guidelines in the U.S. Differ on Some Key Provisions

In the United States there are relatively few offices that are dedicated to the assessment and procurement of P3s. However, a number of states and municipalities are considering establishing their own dedicated offices. Each P3 office has its own procurement guidelines that are influenced by the politics of their jurisdictions. The varying provisions can affect the riskiness of project pursuit in varying ways. Click here to see how different P3 offices treat a number of key procurement provisions that influence pursuit.

Commercial Operations Date vs. Completion: A Regular Case of Mismatch and Misunderstanding

The construction industry suffers from low productivity and a low digitization rate resulting in an influx of new technology being developed specific to construction. Many of these technologies have potential to make a profound impact on the risks involved with the execution of construction projects such as safety risk and design risk. Aon understands that this trend may be of interest to our clients and has created the Technology Corner to profile different construction technology companies. This quarter, we are profiling Pillar Technologies, an IoT/wireless sensors company that monitors key metrics on site such as temperature, smoke, humidity, pressure, and dust. Click here to learn more about the potential Pillar Technologies has to reduce risk on site and what insurance policies it could impact.

Funded retentions can drive better risk management, improved productivity and greater profitability certainty

Risk management tools are vital to many companies’ success, but how can great companies ensure that all of their employees are aware of the risk controls at their disposal? Some innovative insurance policies are taking the “stick” aspect of insurance retentions and turning it into a “carrot” to help incentivize their policyholders’ employees to help mitigate risks. The funded retention can work to align interests of the insurer and the insured by returning the funded retention back to the insured at the end of the policy period if risks are properly managed and there are no claims under the policy. Find out how funded retentions can help in delivering projects on-time, on-budget, and defect free.

Latin American Infrastructure Efforts

Across Latin America, countries are strengthening their P3 legislation and regulatory frameworks to allow for a more effective procurement process across varied asset classes. Peru, Uruguay, Nicaragua, and Mexico in particular, are among the countries in the region seeking to use P3s to address infrastructure gaps in both civil and social assets, including ports, airports, health facilities, and schools. Additionally, there are numerous opportunities in the secondary markets as large construction firms in Latin America are engaged in restructuring and divestment to free up capital or due to liquidity concerns. Foreign contractors may be able to gain a foothold in the region as local firms address these challenges. Discover more of the emerging trends in Latin America here.

States begin to take infrastructure funding into their own hands

Many states in the United States are taking steps ahead of the federal government to address their infrastructure gaps – by approving gas tax increases to improve funding, passing P3 enabling legislation to expand procurement opportunities, and passing large project-specific funding packages. Nine states raised their gas taxes in 2016 or on January 1, 2017, while three new states passed P3 enabling legislation. Many states that had enabling legislation passed modifications to their P3 legislation while voters in 22 states approved of major initiatives to increase infrastructure investment. Now, early in the current legislative session, a number of states are considering new gas tax rates, P3 enabling legislation, and other changes to current P3 practices. Click here for a quick recap of 2016 and pending legislation.

Massive Chinese construction firms continue to look outward for growth

In recent years, massive Chinese construction firms have dominated the construction marketplace, comprising six of the top ten largest global contractors bringing in almost $450 billion in revenue in 2014. While much of this revenue can be sourced to domestic projects, the slowing construction market in China is leading these firms to look outward for growth. Over the last five years, China has experienced a surge in outbound foreign direct investment and construction has played an important part in this move. Half of construction in Africa completed by foreign firms in 2014 was completed by Chinese contractors and as was nearly 20% of such projects in Asia and the Middle East. As the United States appears to ramp up its infrastructure investment, American entities should plan early around the potential opportunities for partnership and risks to increasing Chinese participation in the market. Read more about the growth of Chinese construction firms in the global construction market.

A Captive’s Role in Enterprise Risk Intelligence

Part One of our series on captive insurance companies for construction firms highlights the potential role a captive can play in harnessing the firm’s enterprise risk intelligence. The insurance sector has always been responsible for helping companies make better-informed decisions when it comes to managing risk. And now, the collection, organization, analysis and visualization of data is playing a much bigger role within all organizations. Learn how a captive insurance company can become an engine for better decision-making through the capture and analytics of exposure and loss data.

Restructuring American Development Finance Through the BUILD Act

On October 5th, President Trump signed into law the Better Utilization of Investments Leading to Development (BUILD) Act which reorganizes and combines the country’s existing development finance institutions into a new entity, the U.S. International Development Finance Corporation (USIDFC). The new entity will have expanded lending and loan guarantee capacity as well as a new ability to make minority equity investments in projects. The reorganization and expansion of mission is, to some extent, in response to China’s Belt and Road Initiative (BRI). See how the U.S.’s new development finance institution may impact projects in developing markets.

Sources of Delay and Cancellation Risks in Latin America

Large, complex infrastructure projects are prone to many sources of risk that can cause construction delays or cost-overruns. In recent years, the Latin American construction market has seen significant delays due to widespread corruption scandals involving some of the region’s largest contractors, leading to stalled projects as the contractors seek to manage the financial and legal consequences of the investigations. As projects are delayed, particularly for projects already under construction, they face severe risk to their ability to restart, due to issues such as insurers becoming reluctant to approve extensions of policy periods if construction extends beyond what was originally anticipated. Read on to see why some insurers may not be willing to extend the policy period and key strategies to mitigate this risk in the event of a project delay.

The Captive as a Business Development Tool

(Part 2 of 8 in our series on the Strategic Uses of Captives)
Part Two of our series on captive insurance companies for construction firms highlights the ways that contractors can use a captive to foster deeper relationships with their owner-clients. Many contractors have been building out business development teams in recent years to demonstrate value to their clients beyond simply providing the lowest construction price. To build this trust among their clients, contractors must show a keen understanding of their clients’ industry to know how to help those clients succeed within that industry. A captive insurance company can act as a repository for potential solutions to address the many risk issues faced by a contractor and their clients and can therefore foster deeper and more constructive dialogue with those clients. Discover how a captive insurance company can help enhance business development and build trust through transparent risk pricing and allocation discussions.

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