This article was produced in partnership with MECON Insurance
The ripple effects of global supply disruption continue to echo through Australia and New Zealand's construction sector, creating unprecedented challenges for builders and insurers alike. This strain is now cascading into the insurance sector, where claim sizes have risen dramatically over recent years.
"Our data shows that construction claims in the SME space have experienced notable increases in severity over the last four years, compared to pre-COVID days. Indeed, we are looking at approximately 35% average claim size inflation over this period," said Milos Skopljak, MECON's national claims manager.
A combination of supply chain disruptions, escalating material costs, and a shortage of skilled labour has created a perfect storm for the construction industry. Builders are watching profits evaporate under escalating costs and worker shortages, leading to a spike in business closures and the highest payment default rate of any sector surveyed by commercial credit reporting bureau CreditorWatch. ABS data shows that in the 12 months to September, house construction costs rose 4.4% while non-residential construction costs were up 6.6%.
For MECON, these challenges underscore the critical role of precise claims management and tailored policy solutions, including extended project coverage options and a streamlined claims process, to support clients through turbulent times.
Skopljak notes that many builders locked into fixed-price contracts have seen margins compressed to breaking point.
“Construction companies, big and small, are currently going through a rough patch… Builders who entered fixed-price contracts at any point over the last few years would have had their margins squeezed, and in many cases suffered irreversible financial losses,” he said.
“MECON prides itself on being service-oriented and I firmly believe that the current economic climate is a great opportunity for us to showcase our value.”
The company's deep technical understanding of construction risks has become particularly valuable as the industry grapples with these challenges.
Construction insurance claims require careful consideration of multiple factors, from contractual obligations to policy terms. MECON has developed a systematic approach to managing these complexities while maintaining efficiency in claims processing.
"As a starting point, our response timeframe to newly lodged claims is one thing that we can control. Our service standards dictate that new claims are recorded and actioned within one business day," said Skopljak. This commitment to rapid response sets the foundation for effective claims management.
The company has implemented a Fast Track process for straightforward, well-documented claims, targeting settlement within five working days. However, speed is balanced with thoroughness. Regular communication with clients ensures expectations are managed throughout the process, particularly for more complex claims that require detailed investigation.
While maintaining its focus on personal service, MECON also recognises the importance of technological advancement in claims processing. Recent investments in IT infrastructure have enhanced the company's ability to process claims efficiently while maintaining the high service standards that earned its five-star rating on the LMI claims comparison website.
These technological improvements complement rather than replace the personal expertise that characterises MECON's approach. The company maintains that construction insurance requires a balance of technical knowledge, industry experience, and efficient systems to deliver optimal outcomes for clients.
One significant development has been MECON's response to project delays. Supply chain disruptions have caused many projects to exceed their maximum duration periods under standard policies, creating potential coverage gaps that could leave builders exposed.
"To combat this, MECON has released an optional endorsement that automatically adds a further three months to MPD (Maximum Project Duration). The effect of this measure has been invaluable to our clients as it significantly minimises the risk of a project falling outside the policy terms," Skopljak explained.
This adaptation exemplifies MECON's approach to addressing emerging industry challenges. The company has also invested in updating its IT systems and maintains an ongoing technical upskilling programme for staff. "We see our claims department as something of a window into MECON. It's a bit of a cliché, but the 'promise' does not materialise until there is a claim to deliver it on," said Skopljak.
Despite current challenges, housing demand presents significant opportunities for the construction sector. "The federal government's plan to build 1.2 million dwellings over the next five years is already running behind. My view is that the construction sector will pick up in the new year. It simply must," said Skopljak.
As the industry leader in SME construction insurance, MECON is well-positioned to support this anticipated growth. The company's specialised focus on construction allows it to understand and respond to industry needs in ways that general insurers might not.
Given the complexity of construction insurance, brokers face particular challenges in claims management. Many aspects of construction claims require specific expertise to navigate effectively.
"Claims that we deal with often involve an element of defective workmanship/design and/or consequential loss. These are typically excluded under the policy and recognising that at an early stage is paramount," Skopljak said.
He emphasises the importance of clear communication with clients from the outset, particularly regarding policy exclusions and limitations. "My main message to brokers is not to shy away from having those hard conversations with clients. Managing the expectations early is crucial and it all starts when that new claim comes across the broker’s desk."
BUILDING A SECURE FUTURE FOR YOUR CONSTRUCTION CLIENTS
MECON Insurance is a specialist underwriting agency dedicated to the construction sector. We partner with insurance brokers to deliver tailored solutions for a wide range of clients and industries. With numerous and consecutive broker-voted awards for insurance solutions, innovation, claims and service, MECON; proudly part of the wider UAA Group, strives to provide the best experience in construction and machinery insurance. As a niche underwriting agency, our cornerstones are service and product. With our experience, technical knowledge and commitment to service, we respond quickly to help you get more clients properly insured. Our policies provide broad, practical and useful cover, resulting in easier claims assessments and more certain claim outcomes. We provide insurance for risks throughout Australia and New Zealand, as well as overseas operations for locally-based clients.
