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The following is an opinion piece written by Richard Forrest Smith – CEO, ECIC. The views expressed within the article are not necessarily reflective of those of Insurance Business.
It’s now just over two years on from the Brexit vote with the UK set to leave the EU on March 29, 2019. While the ‘exit deal’ is still in question, what is almost certain is the impact Brexit will have on contractors and in turn on the provision of insurance to this market.
As a specialist insurer for the contracting industry we can see a testing combination of factors emerging in an industry which is already under pressure.
Construction output fell in the three months following January by 3.4% in April 2018 and almost one in three (28%) of engineering services firms say turnover decreased during the first quarter of 2018.
One of the key problems the sector faces as a consequence of Brexit is that ‘Made in the UK’ is not a term that is strongly associated with the UK’s construction sector.
The issue of skills
First, we have the issue of skills. As our skilled contractor workforce has aged with 500,000 expected to retire in the next 10 years, the younger generation joining the sector are struggling to fill the gap.
This has created a real dearth in skills which has been filled to an extent by migrant workers - the Construction Industry Training Board’s research shows one in three construction firms employs migrant workers and ONS data shows these workers are on average much younger than UK nationals working in the sector. Just 18% are aged 45 or above, compared with almost half of UK nationals (47%).
This valuable human resource is at risk of dissipating following Brexit.
The UK Government has recently conceded to allow doctors and nurses to be taken out of the tier 2 visa cap. There do not seem to be any similar concessions being considered for construction workers.
Recognising the challenge, the Government recently announced a £22 million investment in 20 onsite skills training centres, with 158,000 new construction jobs to be created in the UK over the next five years.
In the meantime, scarcity of skills may push labour prices higher and increase reliance on sub-contractors. ECIC’s own research in 2017 found that 78% of contractors had been impacted by skills shortages and that in order to help bridge this gap, 25% were planning to use more labour only sub-contractors and 31% planned to use more bona fide sub-contractors.
Increased reliance on sub-contractors increases main contractors’ responsibilities around site risk management and ensuring insurance arrangements are adequate to cover all those employed. In practical terms this means obtaining evidence that confirms a worker has read or been made aware of the risk assessment, has fully understood the risks and has received the required training and the correct personal protective equipment prior to undertaking any work.
It’s a major administrative task that cannot be ignored and needs to be considered for the entire workforce, not just those who are directly employed by the main contractor.
Considering that the Health and Safety Executive has released data showing a 27% increase in construction fatalities in the past year, maintaining health and safety standards is becoming ever more important.
Material costs
The second big factor is materials costs. Almost all construction materials are imported and may be subject to tariffs.
Rising material costs may lead to reductions in supply as companies become more cautious in their ordering, and this reduced supply may in turn drive up costs further.
If contractors resort to using lower standard materials this could have massive implications for worker safety during the construction phase and the longer term safety and integrity of the building. For example sub-standard wiring may create fire risks, roofing materials not fit for purpose will allow water ingress. All this has the potential to lead to higher claims costs. It’s a bleak but feasible scenario.
Supporting professionalism
We must do what we can to support professionalism in the construction sector. This means insisting on standards of competence prior to agreeing insurance cover. It also underlines the importance of supporting brokers who are our eyes and ears on the contracting market, and can help educate contractors on the risks of health and safety complacency.
While the recent HSE statistics are a concern, there has been an overall long-term downward trend for the rate and number of fatal injuries in construction since the millennium. No-one wishes the sector to take a backward step as one of the consequences of Brexit.
ECIC is a trading name of Markel International Insurance Company Limited, whose ultimate holding company is Markel Corporation. EC Insurance Company Ltd (ECIC) is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. FRN: 202123.
