News & Insights

Could your construction business weather a catastrophe?

Published 29 May 2018

Extreme weather events – in Australia and around the world – are becoming increasing likely. This probability has affected how insurance providers view construction business’s risk exposure. We unpack the some of the implications and include some pointers for business survival through an extreme weather event.

The World Economic Forum’s 2018 Global Risks Report rates extreme weather events as the number one risk in terms of likelihood of occurring and second only to weapons of mass destruction in impact. Australia’s Bureau of Meteorology senior meteorologist, Dr Blair Trewin, says climate changes are locked in for about the next 30 years.

With the increasing occurrence of wild weather in Australia, contractors are exposed to damage and delays from rain, storms, flooding and bushfires more frequently than they have been before. According to a recent industry-compiled report, just over half (56%) of 2017 disaster losses in Australia were covered by insurance.

Construction businesses should take action now to mitigate the effect on project profitability of

  • damage
  • destruction
  • remediation
  • delays
  • reconstruction.

“When construction firms become unable to predict weather patterns and develop emergency plans for weather variables, it puts their entire business at risk,” warns a report by CMiC Evolve, Extreme Weather and the Construction Industry.

The increasing occurrence of extreme weather events changes the risk profile of certain types of works, increasing exposure for works under construction, as the following case study demonstrates.

Case study – staying cool under pressure

When winds with gusts exceeding 100 kilometres an hour hit Victoria in late July 2017, they ripped the roof off a cold store under construction. The principal contractor had been engaged to build the facility at an existing warehouse property in Melbourne, with a hard deadline for completion in time for the arrival of stock to be kept study weather catastophe construction2

The wind penetrated under the leading edge of the roof and lifted away the PVC membrane sealant, removing about half of the covering. With the first delivery of pallets of stock scheduled in two weeks’ time, the integrity of the roof structure needed to be reinstated, made watertight, fully insulated and the internal temperature of the cold store reduced to -4⁰ Celsius.

Under the contractor’s annual contract works policy Gallagher immediately appointed a preferred loss adjuster and instigated submission of the claim for approval. The contractor quickly provided estimates for reinstatement of the damage which were assessed as reasonable and the approximately $1.5 million works were approved for timely completion.

Double-check exposure

Gallagher’s Practice Leader, Construction, Angela Vella advises businesses to review their insurance protection against damage, bearing in mind they may be insured under a principal’s policy – which may not provide the cover expected or that contractors can obtain under their own policies.

“More and more frequently we see that principal-controlled insurance policies traditionally available in the insurance market don’t provide cover for certain types of weather events, and they also impose very high deductibles for contractors.”

Get appropriate cover

On the positive side, construction insurance against these extreme weather events is evolving, with products that don’t require physical loss or damage to activate the policy, instead predetermining a ‘trigger event’ based on weather risk – such as extreme temperature, rainfall or wind – and tailoring the insurance payout to reflect the contractor’s financial exposure to the event, which might include liquidated damages, prolongation costs or other losses.

“Gallagher has been working with clients to develop innovative solutions to deal with the changing exposure to weather events, by tailoring contract works insurance to not only cover reinstatement of loss or damage, but to work towards reducing the uninsured risk associated with prolongation costs. Our market-leading solutions aim to improve cash flow for clients to help them survive insurable events,” Vella says.

Want to know more about extreme weather risks and how to prepare for them? Read Gallagher’s in-depth white paper, ‘Weather forecast: predictably unpredictable’.

Talk to us

Gallagher’s construction specialist brokers have the expertise and industry knowledge to formulate insurance solutions that meet the challenges contractors face with managing their exposure to extreme weather. Talk to a specialist in your area now.

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