Engineering insurance is one casualty of the 2008 financial crisis that continues to have a sluggish recovery, according to Swiss Re’s latest sigma report.
Swiss Re said that stagnant premiums for the sector have continued in the years after the crisis, driven by a limited growth in exposures and continued weakness in insurance pricing.
“In advanced markets, construction spending as a percent of GDP remains considerably below its pre-2008 financial crisis peak, while some key emerging markets have recently experienced sharp recessions,” Swiss Re observed in its report. “Similar to other insurance lines, abundant risk capital has also contributed to significant declines in premium rates.”
Engineering insurance helps cover risks such as construction or infrastructure projects and can also address potential losses for a project once it is complete or operational. It’s not a large part of the industry. Swiss Re estimates that it takes up about 3 percent of the overall commercial insurance market with annual premiums of about $21 billion.
Finally, Turning a Corner?
But engineering insurance was more robust as an insurance line before the economic crash. Ten years later, Swiss Re predicts that the line could turn a corner.
One thing that has kept the line sluggish is weak investment in buildings, infrastructure and machinery over the last decade, particularly in advanced economies, though emerging markets have not been immune. Swiss Re argues that the market could see more growth as the global economic recovery finally strengthens.
“Within investment, real global construction output is projected to accelerate in the near term—around 4 percent [annually] over the next few years, according to some estimates—outpacing overall global economic activity,” the report stated.
Swiss Re points out that new technology will likely bring efficiency and gains in safety to construction, but that will take time. Even with those changes, the report noted, new risks will follow, so engineering insurance could see new growth in this way, too.
“Technology is constantly evolving in engineering. Insurers must continually evaluate how technology could alter the risk landscape and influence their underwriting approach,” according to the report.
Swiss Re writes that new technologies will “affect the nature of existing risks and bring new risks, such as cyber, which means that the severity of claims could increase even if the frequency of incidents falls.”
Swiss Re predicts that engineering insurance premiums could grow from $21 billion now to $34.5 billion in 2027 if all of these growth triggers come to pass.
The full Swiss Re sigma report is called “Constructing the future: recent developments in engineering insurance.”
Source: Swiss Re