Brexit could have heavy impact on construction
Posted on: 17 August 2017
More than a year on from the UK's decision to leave the European Union, uncertainty and speculation about the implications continue to face UK businesses.
As we progress through 2017, as an industry, we will no doubt be keeping our finger to the pulse when it comes to changes that will impact our own businesses. For example, revisions to regulatory framework, compliance requirements and HR procedures, just to name a few, will need to be considered.
It would be ambitious to hope that questions about what a post-Brexit Britain and its financial service industries will look like will be immediately answered. However, in the meantime we should be considering the possibilities and potential implications to ensure that our people have an understanding of how the decision to leave Europe could impact our customers.
Some sectors, such as construction and motor trade, could feel more of an impact than others and this is something that both insurers and brokers should be thinking about already.
In the case of construction, currently more than half (59%) of the sector's imports are from the EU. A weakening pound and a potential introduction of tariffs from the EU would increase the cost of these raw materials considerably. Furthermore, potential changes in immigration rules could impact labour supply and lead to a shortage of skills, which in turn could increase wage costs for firms.
These two areas alone would have a significant impact on the operating costs of any construction firm and lead to rising rebuilding costs, causing building sums insured to rise. However, it's not all bad news for the industry. In a recent survey by Lloyds banking group, 42% of respondents said that their forecast for growth had improved since the Leave vote, and five-year growth forecasts within the sector have increased from 25% last year to 28% this year.
Brokers will need to consider whether index linking alone will be sufficient to keep pace with these rising costs. Underwriters too need to ensure that their premiums are sufficient to cover any increase in rebuilding costs over the policy period for any risks written on a day-one basis.
Reduction in red tape
A major question for our government is deciding which EU regulations should stay or go. While a reduction in red tape would be welcome for many UK businesses, potential changes to health and safety laws could also have a huge impact on the construction industry. If current legislation does change, the insurance industry needs to play a key role in ensuring that health and safety standards do not deteriorate.
According to the Health and Safety Executive, each year there is an average of 66,000 workplace accidents in the construction sector. This, combined with 79,000 self-reported workplace illnesses, leads to around 2.2 million working days lost for the sector. We see it very much as our responsibility to our clients, to help them prevent workplace accidents wherever possible by providing risk advice and talking them through steps for improvement.
To ensure standards are maintained, there will be a greater reliance for organisations such as the Loss Prevention Council and Fire Protection Association to build relationships with their counterparts in Europe to share research and identify any new trends in technologies, exchanging ideas not only with the insurance industry - with whom they already have very strong links - but also the industry sectors directly to ensure they have the confidence and skills to use these new materials and technologies safely.
There is still much to be discussed about the UK leaving the EU. But the changing risks which face our clients should be a priority in 2017. We intend to keep well-informed on how the complexities of Brexit will have an impact on various sectors in the UK so we are ready when it comes to underwriting decisions and providing up-to-date risk advice.
This article was originally published in January 2017 by Insurance Post.