Underwriting the US infrastructure gap

Deficient infrastructure is arguably one of the biggest crises facing the US

The nation’s infrastructure is not only inadequate to meet future demands, but has also largely fallen out of a state of good repair for existing assets. Ultimately, everyone is negatively impacted— individuals, businesses, and governments. Without optimally functioning transportation systems, utilities, airports, internet and wireless networks a nation suffers competitively and in many cases public health is put at risk.

Underwriting the US infrastructure gap, a new publication from Swiss Re Economic Research & Consulting, examines the scope of the infrastructure crisis and explains how re/insurance can help reverse the trend by facilitating renewed, large-scale investment.

The difference between planned infrastructure investments and what’s actually needed is estimated at more than USD 2.1 trillion over the next decade. Thus, it may come as little surprise that the US fails to show up in the top 10 economies for infrastructure quality and trails Canada, Australia, South Korea, China and many European countries in terms of infrastructure spending as share of GDP. Some of the economic consequences include:

  • US businesses pay USD 27 billion in additional freight costs because of poor road and bridges
  • Bad roads may be a factor in up to one-third of the nation’s 30,000 annual traffic fatalities
  • A 30-minute power blackout can cost medium and large industrial concerns USD 16,000 in economic losses, on average
  • Each year approximately 240,000 water main breaks cause property damage and service interruptions
  • Weakened structures and systems are more vulnerable to damage or destruction from natural catastrophes

A continued lack of investment in infrastructure results in new risks, which are eventually reflected in higher insurance claims. Re/insurers bear the risk from deficient infrastructure in the form of property damage, business interruption and liability claims, to name a few. So, in a proactive sense, they have a vested interest in recognizing, assessing and mitigating the risks presented by the infrastructure gap.

Re/insurance on infrastructure projects takes many forms—from covering risks during construction, ensuring contracts are fulfilled through surety bonds, compensating investors if equipment fails to arrive on time, protecting architects, engineers, designers and construction crews in instances of professional negligence and guaranteeing revenue streams to utility owners during periods of low demand.

Without the active participation of the re/insurance industry, infrastructure projects don’t happen and the operation of infrastructure can’t be sustained. Re/insurers have a deep understanding of the complex risks related to the construction of infrastructure projects and are well-placed to advance the conversation by engaging with decision-makers and stakeholders at many levels.