In the wake of increasing weather-related disruptions, such as the severe storm in the UAE on 16 April, the construction industry faces significant challenges. Insurance plays a critical role in mitigating these impacts.
In this exclusive Q&A with Construction Week Middle East, Arsalan Aziz, Associate Director at AES International, explores the essential types of insurance coverage for businesses and contractors, particularly in the UAE construction sector, to address rain-related damages and losses.
He also shares best practices for making claims and how insurers can help develop risk mitigation strategies.
This guidance is crucial for ensuring project continuity and financial protection in an increasingly unpredictable climate.
Note: The information in this interview is merely to inform and not intended as financial advice.
In the context of climate change, and specifically, more frequently occurring storms and flooding, what kind of insurance do businesses need, especially those in the UAE construction industry, to cover rain-related damages or claims?
When it comes to construction, Contractor’s All Risk (CAR) insurance is crucial for contractors. This is comprehensive coverage for various risks that can arise during construction.
Since building sites are inherently prone to accidents, human errors and unforeseen events, such as fires, floods, storms or earthquakes, CAR insurance steps in to mitigate the associated financial burden of them occurring.
CAR typically covers the cost of repairing or replacing damaged property, as well as any legal liabilities arising from third-party injuries or property damage while building.
CAR protects the investments of contractors and project owners and ensures that construction projects can proceed smoothly even in the face of unexpected challenges.
Looking at businesses more generally, and the effect of adverse weather, there are two particularly crucial insurance types.
Firstly, property insurance.
This is the foundational policy that all businesses should have. It covers damage to your physical assets, including buildings, equipment, and inventory, caused by various perils such as fire, theft, vandalism, and yes, weather events.
Property insurance helps mitigate the cost of repairing or replacing damaged property, minimising financial loss.
Second, there’s business interruption (BI) insurance.
While property insurance covers the physical damage, BI covers the financial losses incurred due to the interruption of business operations, including when unpredictable weather strikes.
A well-designed BI policy can provide coverage for lost income, ongoing expenses, and even related additional costs. It can also cover scenarios like denial of access to your premises due to a weather-related event or loss of critical suppliers.
Property and business interruption insurances in tandem allow businesses to better safeguard themselves against the financial repercussions of weather events.
It’s essential for business owners to carefully assess their risks and work with their insurance advisors to tailor policies that adequately address their specific needs and exposures.
What kind of information do businesses and contractors in the construction industry need to have on hand to make claims easier or more effective? What are some guidelines or procedures to keep in mind?
It’s crucial for the insured to act promptly and responsibly after damage has occurred to minimise loss.
They should take all necessary steps to mitigate damage, documenting everything with photos and videos for evidence during the claims process.
Maintaining a comprehensive register of all assets is essential for accurately quantifying losses and filing claims effectively.
It’s advisable not to dispose of any damaged property until a loss adjustor has conducted an assessment survey, except in cases where it poses a safety hazard.
What lessons can be learned around insurance from the previous spell of rain and flooding?
More frequent and more severe weather events are causing significant disruptions to businesses and construction projects. We saw some devastating effects after the storm in the UAE on 16 April, including business closures and project delays due to damage and safety concerns.
These events lead to financial losses, construction delays, and impacted communities. It highlighted the need for long-term resilience planning, investment in resilient infrastructure, and collaborative efforts to mitigate risks.
Navigating significant construction projects in a region where cost often dictates decisions on contractors and building methods, and where the contracting process can be adversarial, presents unique challenges for insurers.
Thorough risk assessment
Insurers must work closely with project stakeholders, but firstly, they will need to conduct a thorough risk assessment for each project.
This will consider the challenges of the region, the construction, and the potential impact of adversarial contracting processes.
It should also evaluate the project location’s susceptibility to natural disasters, the track record of contractors involved, and the complexity of the construction methods, among other factors.
Offer tailored solutions
Post-risk assessment, insurers may need to offer tailored insurance solutions that address a project’s specific risks.
This might involve developing specialised coverage for unique risks associated with cost-driven decisions, contracting processes involving multiple parties, and novel construction methods.
For example, offering coverage for disputes or delays arising from cost-cutting measures or for the potential consequences of using untested building methods.
Incentivise mitigation strategies
With project stakeholders — such as contractors and project owners — insurers can develop risk mitigation strategies.
This could include incentivising the use of proven construction methods, promoting transparency and collaboration between parties, and offering risk management advice to minimise the likelihood of disputes and delays.
Educate stakeholders
Finally, insurers can also play a role in educating stakeholders in the construction industry about prioritising quality and safety over cost cutting.
Organising workshops, seminars, or industry forums are three ways to do this — highlighting the long-term benefits of investing in risk management and adopting best practices.
By understanding the unique challenges of these environments and offering tailored insurance solutions and risk mitigation strategies, insurers can help ensure the successful completion of novel and significant construction projects while protecting all parties’ interests.