Fires and Natural Disasters Cause Most Construction, Engineering Claims

Fires and natural disasters are the top contributors to construction and engineering losses, according to an analysis by Allianz Global Corporate & Speciality (AGCS) of 22,000 insurance claims worth €12.8 billion during the five-year period from 2017 to the end of 2021.

Fire and explosion is the most expensive cause of loss, accounting for 27% of the value of claims analyzed, while natural catastrophes account for almost a fifth of claims by value (19%) and are also the most frequent cause, totaling 18% by number, said AGCS in a briefing on the construction sector titled Global Industry Solutions Outlook — Construction.

“Despite significant improvements in risk management and fire prevention, fire will always remain a significant hazard because of the nature of the work in the sector, which often involves open flames, such as welding, the application of heat with equipment like hot tar boilers or the generation of sparks during leadwork and grinding,” the report said.

Embarking on these activities in the vicinity of combustible materials, which are plentiful on construction sites, increases the potential for a loss event, the report affirmed. “Regularly assessing and updating prudent fire mitigation practices, including preventative and extinguishing measures and methods, and contingency planning, are essential to lower the risk of loss from an incident.”

Addressing the remediation required for natural catastrophes, the report said, construction sites need to give more consideration to the impact of extreme events, such as wildfires, flash flooding and landslides in their risk assessments.

“With climate change increasing the frequency and severity of these events, the costs of property damage and business interruption are expected to escalate,” the report said.

Recent years have seen claims activity from such catastrophic events, which can lead to temporary closure of sites and infrastructure projects due to safety concerns and power outages. The

report noted that business continuity plans should be regularly updated and tested.

Rounding Out Top 5 Causes of Claims

Defective products are the third most expensive cause of claims (10%) and the second most frequent cause (13% by number) — any potential defects in design can mean that project losses quickly soar.

Faulty workmanship/maintenance (8%) and machinery breakdown (7%) round out the top five causes of loss by value of claims.

The analysis was conducted on 22,705 insurance claims worldwide between January 2017 and December 2021, worth approximately €12.8 billion in value. Claims include the share of other insurers as well as AGCS.