Overview
The Middle East's construction market is currently experiencing a stable phase, with a notable increase in activities related to renewable energy and sustainable city projects. Countries like Saudi Arabia and the UAE are leading this push, driven by national visions aiming to create sustainable urban environments. Mega projects such as NEOM and other eco-friendly city initiatives are becoming more prominent, reflecting the region's commitment to future-proof infrastructure.
Primary construction risks
One of the primary risks associated with construction projects in the Middle East is natural catastrophes (nat cat), particularly flood and water damage from unexpected rainfall. Despite the region's perception as being relatively benign in terms of natural disasters, recent events have shown an increase in the frequency of nat cat claims. As construction activity expands into previously uninhabited areas, the potential for encountering unknown geological and environmental challenges grows, thereby increasing the risk profile for construction projects.
Coverage trends
The demand for construction insurance in the Middle East remains robust, with standard coverage options like all-risk and third-party liability (TPL) continuing to be popular. However, there is a growing requirement for Delay in Start-Up (DSU) insurance, especially for lender-driven projects in the power and renewables sectors. While design defect coverage under LEG2 remains the norm, there is a gradual but infrequent push towards broader LEG3 coverage.
New technology
The adoption of new technologies such as Building Information Modelling (BIM) and drones is still in its nascent stages in the Middle East. BIM, which can significantly enhance risk assessment and project management, is not yet widely used. Drones, however, are being employed more frequently for site surveys and risk management, providing insurers and contractors with better oversight and data-sharing capabilities.
Sustainability
Sustainability is a key focus in the Middle East's construction market, with a significant influx of projects related to hydrogen production, carbon capture, and other renewable energy sources. The region is seeing a decline in traditional coal-fired and petrochemical projects in favour of more sustainable options. This shift is driven by both environmental goals and economic incentives, as countries aim to reduce their carbon footprints and meet global ESG (Environmental, Social, and Governance) standards.
Economic and political pressures
The construction market in the Middle East is not significantly impacted by economic or political pressures, maintaining a steady level of activity. However, marine insurance is more affected, especially given the geopolitical complexities that can alter shipping routes and extend project timelines. This, in turn, affects construction insurance, particularly for projects with DSU coverage, as longer shipping times can lead to increased premiums and extended risk periods.
Claims
Claims in the construction insurance sector in the Middle East are predominantly driven by nat cat events, particularly floods and water damage from unexpected rainfall. These claims have led to adjustments in deductibles and coverage limits for nat cat risks. The market is also seeing a trend towards more focused deductibles and sometimes even coverage limits for these specific perils, reflecting the increased frequency and impact of such events.
In conclusion, the construction insurance market in the Middle East is evolving in response to new technologies, sustainability goals, and changing risk profiles. While the market remains stable, clients need to stay vigilant and adaptable to manage the emerging risks and opportunities in this dynamic region.
