Closing the infrastructure investment and protection gap
It's a regular occurrence these days - headline-making heavy losses on large infrastructure projects that have big implications for the insurance industry. For example, the unprecedented billion-dollar losses at the Colombian Ituango hydro power plant shocked the industry. Since then further mega Construction claims of more than USD 1 bn have been reported in the media on LNG and Power projects. The unpleasant truth is that Ituango-sized losses will happen again and whilst the industry is coming to terms with this new order of magnitude and reviewing its strategies, it is clear that the protection needs for construction risks will go in one direction only - upwards.
Over the coming years and decades, the world needs vastly expanded urban infrastructure for a growing population, clean energy supply and sustainable, new transportation systems. Together public and private sectors will invest and build to improve life quality and safety standards, as well as to reduce poverty and inequality. Worldwide construction output will no doubt grow stronger than the global economy. Improved building standards, methods and risk management may reduce incidents, but at the same time projects will continue to get bigger and more complex. New technologies will create new risks, including a strong increase of cyber risk as digital fabrication and data-driven survey and construction methods become the new standard. The newly emerging risks need to be understood, reduced, mitigated and ultimately insured.
Reliable, competent (re)insurance is a key enabler for the infrastructure investment that our world needs so urgently. The public sector alone cannot finance this and needs support from the private sector to close the infrastructure spending gap which is estimated at staggering 15 Trillion USD for the period of 2016-2040*. Private investors such as banks, pensions funds and corporates will always want to protect their assets against the insurable risks. Public sector assets are also increasingly protected under insurance schemes because no investor wants to carry the risk of such mega losses.
Swiss Re is determined to use its broad risk knowledge and expertise to drive sustainable Construction insurance as a fundamental basis for investment. It does this by, not only, providing reliable reinsurance backed by superior financial strength and risk expertise, but also by providing solutions that drive our clients' success. We can only do this in partnership with our clients and the new version of our Project Underwriting Management Application (PUMA) helps our clients in assessing the key risk factors of their construction projects and calculating the risks. PUMA ensures insurance portfolios can be monitored and steered actively and is flexible enough to be tailored to each clients' markets and risk appetite. It runs on the latest web technology in a secure and client-owned cloud domain. A large global client of Swiss Re put it this way:
We're delighted to be able to unveil the new enhanced PUMA. As the risk landscape becomes increasingly complex and future protection needs are multiplying – PUMA can help. It instills a disciplined approach to writing sustainable business so that together with our clients we can make infrastructure and the world more resilient.
*Source: Global infrastructure Hub and Oxford Economics. See also Swiss Re Sigma No 2/2018, p.32.