6 top risks for the construction industry in 2023
From rising costs to the threat of cyber attack, the risk landscape that Australian builders must plan for and mitigate is complex and always changing. As the construction industry continues to experience increased momentum and growth in a post-COVID world, we explore the risks and exposures that can affect builders and building companies.
There aren’t enough tradies
Often described as the backbone of the Australian economy, the construction sector is broadly credited for helping to drive the country's economic recovery following the global pandemic.
With public infrastructure activity expected to rise for the foreseeable future[1], Australia risks not having the workforce to match this growth. The shortage in skilled workers may become so severe that Infrastructure Australia predicts there will be 105,000 unfilled roles in the sector by mid-2023[2].
As the number of home builds, renovations and commercial projects continue to reach record volumes, the residential and commercial building sectors are also expected to suffer continued workforce shortages.
Cybercrime complications
From collecting and storing client data to the use of third-party software, business reliance on technology continues to rise. However, this dependency also exposes businesses to a myriad of cyber risks, including ransomware, malware and scams which aim to impersonate, intercept and/or alter personal or confidential information.
Unfortunately, the construction industry is not immune to such risks. In 2021, the Australian Cyber Security Centre (ACSC) issued an alert[3] to warn construction companies after observing an increase in cyber attacks in the form of business email compromise scams.
A cyber insurance policy can be an extremely valuable in helping minimise damage and disruption from a cyber attack – and should be considered as an additional cover option to complement traditional construction and business policies, which typically exclude cover for cyber-related incidents, whether it’s through general omission or direct exclusion.
Rising costs of materials
Builders continue to face the flow-on effect of rising material costs and supply chain disruption with 2021 national construction costs increasing at their highest annual growth rate of 7.3% since 2005[4].
The material shortage situation looks set to continue into 2023, as global supply chain problems persist due to China-imposed trade sanctions and the war in Ukraine.
While demand for construction products has somewhat eased from the 2021 peak, it could be a while before material producer and distributor logistics issues start to be resolved.
Natural disasters
Construction projects will continue to be exposed to natural hazards and perils such as flood, storms and hail, as extreme weather events increase in frequency and severity.
The cost of natural disasters on the Australian economy is expected to grow 92%, up to $73 billion per year by 2060[5]. A substantial percentage of these costs will be in the form of asset damage to both residential and commercial buildings.
It's important to work with a broker who can articulate the processes to insurers and work with your business to implement programs and strategies to reduce the impact of natural hazards and mitigate increases in insurance premiums and excesses.
Regulatory environment
Globally, the built environment generates 30% of total greenhouse gas emissions annually, and construction consumes about 32% of the world’s natural resources[6]. As a result, construction companies are facing increased public scrutiny to manage their environmental impact and sustainability now and well into the future.
Contractors and sub-trades must be well informed about regulatory frameworks and environment, social and governance guidelines, as governments will likely seek to balance these risks against the benefits of decarbonisation.
A specialist construction broker who understands your industry can help you navigate legislative change and impacts on your business.
Worker wellbeing
With construction workers twice as likely to commit suicide than the national average,[7] it’s never been more important to prioritise mental health and wellbeing improvements throughout the sector.
Workers continue to feel pressure on the job due to long hours, tight timeframes and skills shortages, which can all place strain on the project delivery date.
Across Australia[8] government authorities have been updating workplace health and safety laws and codes of practices to prioritise mental health in the workplace. With these significant changes employers will be more exposed to fines and penalties if they do not follow the rules.
While an industry-wide framework, Culture Standard,[9] has been developed to transform the capacity and effectiveness of the industry, builders also have a responsibility to regularly check in with workers and sub-contractors throughout the project lifecycle to ensure mental wellbeing is addressed at ground level.
Designing insurance solutions that reduce volatility
If you’re in the building industry, consider partnering with a specialist construction risk advisor who can work with you on an ongoing basis to help you identify and manage your unique risk exposures and requirements.
[1] May 2023, Infrastructure Magazine, Federal Budget 2023-24: what does it mean for the infrastructure sector?
[2] October 2021, Infrastructure Australia, Infrastructure market capacity
[3] July 2021, Australian Cyber Security Centre, Cybercriminals targeting construction companies to conduct email scams
[4] March 2022, CoreLogic, Construction costs rising at the fastest annual pace since 2005
[5] 2021, Deloitte, Special report: Update to the economic costs of natural disasters in Australia
[6] Accessed June 2023, CIOB, Sustaining the built environment
[7] September 2021, Culture in construction, Construction industry’s cultural issues cost $8 billion annually
[8]Except for Victoria at the time of writing this article, 20 July 2023. More information: February 2023, Sonder, Psychological health and safety in 2023: What’s changed?
[9] Accessed June 2023, Culture in construction, Construction is under pressure: A better construction industry is in all Australia’s interests
