Analysis by Allianz Global Corporate & Specialty (AGCS) of more than 13,000 engineering insurance claims over the last five years has identified seven major trends in engineering and construction projects, driving some of the largest losses ever:

Higher values bring bigger loss impact.

Construction sites today are much larger than in the past, and projects can run for many years. The expansion of the Al Maktoum International Airport in Dubai, for example, will not be completed until 2030 and is expected to cost around $36 billion (US). As a result, sums insured are now much larger — projects with values of $5 to $10 billion are not unusual, meaning claims can be in the tens of millions of dollars. Flooding of the Hidroituango hydropower dam in Colombia in 2018 during construction is estimated to cost insurers around $1.4 billion, one of the largest engineering claims in history.

Fire/explosion top cause of losses. Natural catastrophes most serious risk.

Fire is the biggest cause of loss for engineering claims, accounting for over a quarter (27%) of losses by value, based on analysis of more than 13,000 claims around the world worth almost €8 billion ($8.8 billion). Fire has caused in excess of €2.1 billion ($2.35 billion) of insurance losses in five years. Natural catastrophes are another source of large claims. For example, storm damage is the second biggest cause of loss by number, accounting for one in 10 claims.

Defective product and quality control losses on the rise.

Defective products are the single biggest source of engineering claims by frequency, and the second-largest by severity, according to AGCS claims analysis. There are almost three times as many defective products claims as storm claims, the next largest cause of claims by frequency. We are seeing an increase in claims related to defects and quality control across the board. For example, two major power generation claims — $200 million events — were caused by defective welding.

Greater supply chain complexity increasing size and cost of claims.

In the past, an airport or a power plant would most likely have been built by a national contractor using local suppliers. Today, it is more likely to involve multiple parties with machinery, equipment, and other components sourced and transported from around the world. Technology is becoming more sophisticated and specialized, which can increase the costs to repair or replace machinery and equipment. If a turbine coming from China is damaged in transport, it might take as long as 18 months for a repair.

Business interruption/delay in start-up claims grows.

Construction and engineering firms ranked business interruption (BI) as the second most concerning risk in the Allianz Risk Barometer 2019. Growing awareness of BI exposures has seen an increase in firms buying BI covers, in particular, delay in start-up (DSU) insurance, which covers delays to construction or engineering projects following physical damage. DSU claims are usually expensive — indemnity for delays in start-up has increased over time from around $200,000 per day to up to $500,000 per day.

Political risk and sanctions increase for long-term projects.

Large construction projects can take as long as five to 10 years to complete and involve contractors and suppliers from around the world, making them vulnerable to sanctions and trade disputes. For example, sudden and large increases in U.S. import tariffs can add millions of dollars to claims for plant equipment and machinery imported from countries such as China.

Growth of renewable energy projects brings challenges & benefits.

As the demand for green energy has increased, solar and wind projects have become larger, the locations more remote and wind turbines much bigger — with blades as long as a football field. In 2018 alone, there were 409 new offshore wind turbines across 18 projects in the EU. Offshore wind can be a particularly challenging area for claims, as turbines can be difficult to access.

Special Reports /

The factors increasing engineering and construction claims

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