The prices of many raw materials have rocketed in recent months, fuelled by an almost ‘perfect storm’ of global events. Angelo Menzella, First Party Claims Manager at 九色视频in Italy, discusses the impact the current economic situation is having on construction claims in Italy and the ways in which clients are looking to address and manage these risks.
The construction industry in Italy is showing signs of recovery after the initial shock of the COVID-19 pandemic. Construction output grew by more than 21% in 2021, although that pace is slowing somewhat this year – growth is about 3.2% so far, impacted by the cost of materials and supply chain crunches among other factors.
The Italian government has put in place several measures aimed at stimulating economic growth post-pandemic and counteracting some of the global hikes in prices for raw materials.
Among those measures, the Italian National Recovery & Resilience Plan 2021-26 was set up to support various initiatives including urban renewal projects and is worth about €1 billion.
And article one of the Decreto Sostegni-Bis is intended to counteract some of the inflationary macroeconomic pressures by providing compensation if the cost of construction materials is raised by about one-tenth of the original price or more, among other things.
The rising cost of many materials has been prompted by a near perfect storm of events. The COVID-19 pandemic, and the resultant restrictions on the movement of people, caused almost immediate supply chain bottlenecks and the after-effects are still causing delays, shortages and pinchpoints.
A lack of ships has also been an issue. As well as causing delays to the transportation of goods, a lack of available container ships has meant goods being transported in bulk carriers that would not ordinarily be transported in such a way. This has increased the exposure of some goods to elements such as water or mice on the ship, resulting in some insurance claims, and causing further disruption to supply.
Recent flooding in China – the world’s largest producer of steel – also has affected production and exports of some goods, including wood, adding to still more delays.
Closer to home, in the autumn of 2018, Windstorm Adrian destroyed large swathes of forest in Northern Italy, affecting timber supplies for the medium term.
And, as well as the human toll and desperate tragedy, the conflict in Ukraine has served to exacerbate many of these issues still further. The conflict has led to energy prices rocketing in most parts of the world.
Despite these difficulties, there are ways in which clients can manage the challenges caused by a shortage of certain materials and the sometimes prohibitive costs of materials and components.
One way is to engage with a greater number of subcontractors and to negotiate with them to try to ensure the best possible price. Talking to a greater number of potential suppliers and diversifying the supply chain is another way in which clients can hope to find materials or components more swiftly or cheaply.
And we have seen clients engage in other – sometimes novel – tactics to manage the effects of rising costs and the supply chain squeezes. For example, one Italian client recently was unable to source a particular machine needed to restore its operations after a fire for a reasonable price and within an acceptable timeframe. Eventually, the client called a competitor and borrowed a suitable machine for a period of time. This cooperation between competitors is a great example of lateral thinking and goodwill in addressing the cost and supply challenges the economy currently is facing.
We have also seen clients look further afield for supplies to reduce costs; one Italian client recently discovered that it was more cost effective to transport a piece of equipment from Sweden, and incur the associated transport costs, than to source the equipment closer to home in Italy. Again, a great example of clients thinking outside of the box in a bid to keep costs manageable.
Building back better
The desire – and need – to build and rebuild in ways that reduce the carbon footprint of processes and structures is an opportunity for our clients, but also a challenge. New techniques, new materials and new types of building mean potential new risks and shifting risk profiles.
Our underwriters are working with clients to understand the ways this changes risk dynamics. And we too are working with underwriters and clients to help them find ways to manage their evolving risk profiles and any claims that occur along the way.
As the world begins to emerge from the worst grips of the COVID-19 pandemic, the war in Ukraine and other factors mean that economic turmoil is likely to continue for some time. As our clients look for ways to mitigate the worst effects of the rising cost of materials on their business, we will continue to communicate with them to find ways to ensure they have risk management solutions to reduce their risks and insurance solutions that will result in valid claims being paid to get them back on their feet should something go wrong.
