Annual Insurance Review 2024: Construction

In this chapter of our Annual Insurance Review 2024, we look at the main developments in 2023 and expected issues in 2024 for Construction.

Key developments in 2023 

Reinforced autoclaved aerated concrete (Raac) made headlines this year, when it was reported that over 150 schools built with the material were at risk of collapse.  Raac was originally used for its lightweight and thermal properties.  However, it lacks durability and is susceptible to sudden failure.  Various organisations, including the Department for Education and NHS Improvement, are taking action to remove Raac building materials over the next few years – work on this will only increase as more at-risk buildings are identified.  Questions will be raised when considering claim coverage as to whether Raac-related damage is construed as a sudden and unforeseen event, or whether it is excluded on the basis of wear and tear.  The extent of damage to a property, and whether resulting damage is covered, will also need investigating. 

Another headline-grabbing construction update was the cancellation of the northern leg of HS2, a decision blamed on project delays and escalating costs.  Originally projected to cost around £37bn in 2009, this year the project was on set to cost around £100bn in total.  The decision to scrap HS2's second phase was met with disappointment by the construction industry, particularly by companies set to undertake work on the project.  The industry will be closely watching how the money will be reinvested in alternative infrastructure schemes, as promised by the Prime Minister. 

The Building Safety Act 2022 (BSA) came into force on 1 October 2023. The Act puts more stringent safety requirements on "higher-risk" buildings (at least 18m high or 7 storeys, which contain 2 or more residential units or are hospitals or care homes).  A new dutyholder regime in the Act puts responsibility on key stakeholders in higher-risk projects to retain and provide information and to maintain. Section 156 of the BSA amends the Regulatory Reform (Fire Safety) Order 2005 (FSO) to improve fire safety in all buildings regulated by the FSO.  This will be achieved by: improving cooperation and coordination between Responsible Persons, increasing requirements in relation to the recording and sharing of fire safety information, making it easier for enforcement authorities to take action against non-compliance, and ensuring residents have access to comprehensive information about fire safety in their building.

What to look out for in 2024

The industry will continue its efforts to comply with the government's Net Zero Strategy, with 2024 likely to see a focus on sustainability and decarbonisation.  The most recent update from the Construction Leadership Council (CLC) shows continued progress in its 'CO2nstruct Zero programme,' particularly in implementing its plan to eliminate diesel use on 78% of UK construction sites by 2035.  In order to achieve this aim, the plan focuses on five areas: measuring diesel use, improving efficiency, using cleaner fuels (such as hydrogen) where possible, transitioning to electric, and working collaboratively with companies across the industry. 

Whilst the number of disciplinary complaints made to the Royal Institute of Chartered Surveyors (RICS), the Royal Institute of British Architects (RIBA) and the Architect's Registration Board (ARB) has not dramatically changed since 2018, the number of ARB complaints which progressed to a professional conduct committee (PCC) (effectively a trial) has increased from 4, in 2018, to 62 in 2023.  With no sign of regulatory investigations slowing down, it is crucial for construction professionals - architects in particular - to ensure they have the correct procedures in place to stay on top of professional development and engage with their regulator when required.   It is also important for construction professionals to check if they are insured for the cost of responding to any such investigation.  

The combination of Brexit, Covid-19, the war in Ukraine, and high inflation rates has resulted in a changeable and high-risk construction market in 2023.  These industry challenges (which have led to increased costs of materials, reduced availability of labour, and higher fuel costs) have made it harder for contractors to estimate their future costs and project timelines.  As a result, contractors are increasing their prices to avoid the risk of cost absorption and insolvency.   The difficulty in forecasting the true cost of a construction project has caused an increase in construction claim inflation. The industry has developed various methods of tackling this, including: adding a provisional sum into a construction contract, including a fluctuation provision and finding creative solutions to keep on-site costs down.  Until external factors affecting the industry stabilise, claims inflation is likely to be an ongoing problem.

Written by Sarah O'Callaghan.