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Engineering & Construction

Positive outlook in Engineering & Construction

This year again, the market for engineering insurance is showing better results than in most other lines of industrial insurance. The German insurance Association (GDV) is expecting a very positive combined ratio of 81 per cent for the 2022 fiscal year (2021: 88 per cent). However, these positive figures are not transferable to all classes or all insurers in the engineering lines.

Turnover of underwriters and claims engineers in the market is high. This affects nearly all insurers and brokers, leading to fundamental problems – in particular in specialised areas such as engineering & construction: in many cases, there is a lack of qualified personnel to meet the ever-increasing demands in underwriting and risk assessment. The effects of more rapid rotation of staff are now also being felt in the response times and underwriting interest of a number of insurers. This trend appears to be particularly critical when it comes to lengthy and complex claims or major project support.

In addition, risk carriers have an increasing need for well-prepared risk data, especially in the case of highly complex or new risks that can often only be insured through large consortia.

Against this backdrop, highly qualified staff, acting as an anchor of stability between customers and insurers, are becoming ever more important to insurance brokers. It is, therefore, vital for customers that all engineering, business, insurance and legal competencies in the fields of engineering, construction and renewable energies be bundled together if they are to achieve the following goals:

  • holistic approach to risk management to provide qualified risk support by offering a highly professional service
  • comprehensive cultivation of the market to achieve improved insurance cover and prices and provide sufficient capacities
  • fully integrated claims processing to allow experienced claims experts to secure the best possible settlements.

Market situation

According to GDV projections published in May, insurers are expecting a premium income of around EUR 2.7bn in engineering & construction in 2022. This would mean a 7 per cent rise in premiums compared with the previous year (2021: EUR 2.5bn). By contrast, claims expenses are expected to fall by a full 5 per cent. This will lead to a reduction in claims expenses to around EUR 1.5bn compared with the 2021 figure of just over EUR 1.6bn. These figures provide the basis for an improved overall combined ratio of 81 per cent (2021: 87 per cent).

However, not all insurers report their figures to the GDV. Insurers with global portfolios in particular are excluded. This means the figures reported by insurers to the GDV are consistently more positive than the figures obtained by global comparison.

Reduced loss expenses and increased premium income

leading to an improved combined ratio

*Extrapolation

Source: GDV

Outlook

As the pandemic subsides, insurers’ sales activities are once again clearly on the rise.

There is increased interest in new risks in engineering & construction, with the willingness to insure such risks also on the up. This suggests that there will be more capacity in the market than is needed to insure such risks.

Only in the case of complex technical risks, policies with poor claims experience or risks with high PMLs (Possible Maximum Losses), is the picture somewhat different. Here, against the backdrop of generally negative claims experience, insurers are showing less risk appetite and are trying to keep prices high, increase them and/or restrict the scope of cover.

Market trends

Trend towards underwriting discipline

Compared with the tenders of previous years, the demands on the quality of risk data have increased significantly. Without disciplined risk assessment conducted by Risk Engineering, Underwriting now no longer has the opportunity to submit a bid at all. Accordingly, turnaround times for tenders have increased significantly.

Trend towards Environmental, Social and Governance (ESG)

The social and political debate on how to achieve climate protection targets has gained traction in recent years. This, along with steadily increasing targets, has also seen guidelines for coverage of climate-damaging risks, such as the insurance of coal-fired power plants, drawn up by numerous multinational insurers. In these guidelines, insurers set out the different ways in which how they intend to support the withdrawal from coal. Against the backdrop of the new geopolitical environment, it will undoubtedly be exciting to see how insurers ultimately interpret their self-imposed guidelines.