South Africa's engineering and construction sector employs more than 1.36 million people, making it one of the country's largest employers. Yet the sector has been under sustained pressure for almost a decade, the consequences of which have fundamentally changed the way risks emerge and materialize on construction sites.
This is according to Nathan Barker, head of engineering at Western National Insurance, who says nine consecutive years of declining production in the industry has driven risky behavior on sites, increasing both the frequency and complexity of claims.
“As projects are slowed or canceled, we typically see more aggressive bidding, less supervision and delayed maintenance on plant and equipment. This changes the overall claims profile, with the potential for more complex claims arising from low quality materials and poor workmanship, as well as an increase in smaller, more frequent claims related to finishes.”
Barker says financial stress is one of the most important drivers of this change. “As margins tighten, cost-cutting becomes more prevalent, increasing the risk of defect-related losses and increasing the frequency of claims.”
At the same time, Barker says, increased volatility in supply chains and longer lead times are contributing to disruptions in construction activity following losses, increasing the total cost of claims. “Claims become more complex due to increased financial pressures, procurement issues and ongoing delays in the project ecosystem. This also comes with an increase in disputes between contractors and subcontractors – often for their survival.”
Barker says South Africa's ongoing skills shortage and increasing weather instability have exacerbated these risks. “The skills shortage, due to top talent leaving South Africa for economic and security reasons, is putting additional pressure on project execution. The frequency and severity of extreme weather events, including floods, storms and fires, is also increasing in provinces such as KwaZulu-Natal, Mpumalanga, Western Cape and Gauteng.”
Additionally, the issue of subcontractors operating without adequate insurance or allowing policies to lapse as a cost-saving measure is also growing. “When times get tough, unfortunately it is not uncommon to see businesses reducing insurance limits, switching to cheaper policies with less cover, or canceling cover midway through the project. This exposes principals to additional liabilities during both construction and maintenance periods, increasing overall project risk.”
Under-declaring project values or scope is another cost-cutting measure that Barker warns against. “Accurate project value at the outset, along with clear declarations on scope, value and project timelines, are essential to ensure continuity of cover. Without this, contractors risk incurring significant reinstatement costs following losses if policies are not commensurate with actual risk.”
He says other common missteps include skipping surveys and maintenance, which could trigger exclusions for wear and tear or poor workmanship, as well as attempting to self-insure high-risk elements without adequate financial reserves.
This is why insurance should form a central part of a comprehensive risk plan. “Early involvement of brokers and insurers helps to align cover with project requirements, while surveys, site-specific risk assessments, quality control and contingency planning strengthen flexibility,” says Barker.
He says specialist engineering can help insurers effectively underwrite projects, handle claims and provide risk support. “Regular policy reviews and thorough documentation are also important to ensure claims preparation and accurate declarations.”
Barker says the cover required in this environment typically includes contractors' all risks, contractors' plant and equipment, public liability, professional indemnity, construction guarantee, construction all risks and project delay or advanced loss of profits insurance – all of which can be tailored through specialist brokers to align with project-specific risks.
While forward-looking indicators such as the Afrimat Construction Index (ACI) point to welcome signs of stability, Barker believes the sector's recovery is likely to be phased. “ACI refers to sustainability rather than strong growth. So when planned government infrastructure spending is realized in the market, contractors should prioritize disciplined preparation over reactive cost-cutting to position themselves competitively.
“Practical steps that businesses can take now include strengthening financial and contractual discipline, investing in quality assurance, site safety and skills development, and optimizing insurance cover through regular reviews and expert involvement,” says Barker. He concluded, “Collaboration across the value chain – principals, contractors, insurers and government – will be key to unlocking South Africa's infrastructure potential.”