South Africa’s engineering and construction sector employs over 1.36 million people, making it one of the largest employers in the country. Yet this sector has been under sustained pressure for nearly a decade, with consequences that have fundamentally reshaped how risks emerge and materialise on construction sites.
This is according to Nathan Barker, Head of Engineering at Western National Insurance, who says that the industry’s nine consecutive years of declining output have driven riskier behaviour on sites, increasing both the frequency and complexity of claims.
“As projects slow down or are cancelled, we typically see more aggressive bidding, reduced supervision and deferred maintenance on plant and equipment. This shifts the overall claims profile, with an increase in smaller, more frequent claims related to finishes, alongside the potential for more complex claims stemming from lower-quality materials and poor workmanship.”
Financial strain is one of the most significant drivers of this shift, says Barker. “As margins tighten, cost cutting becomes more prevalent, increasing the risk of defect-related losses and a higher frequency of claims.”
At the same time, Barker says that increased volatility in supply chains and longer lead times are contributing to interruptions in construction activities following losses, pushing up the overall cost of claims. “Claims tend to become more complex due to intensified financial pressure across the project ecosystem, procurement issues and ongoing delays. This comes with a rise in disputes between contractors and subcontractors – often for their very survival.”
Barker adds that South Africa’s ongoing skills shortage and increasing weather volatility has further exacerbated these risks. “A skills shortage, fuelled by top talent leaving South Africa for economic and security reasons, is placing additional strain on project execution. There has also been an increasing frequency and severity of extreme weather events, including floods, storms and fires across provinces such as KwaZulu-Natal, Mpumalanga, the Western Cape and Gauteng.”
Compounding this is the growing issue of subcontractors operating without adequate insurance, or allowing policies to lapse as a cost-saving measure. “When times get tough, it’s unfortunately not uncommon to see businesses reducing insurance limits, switching to cheaper policies with narrower cover, or outright cancelling cover mid-project. This exposes principals to additional liabilities during both construction and maintenance periods, further heightening overall project risk.”
Under-declaring project values or scopes is another cost-cutting measure that Barker warns against. “Accurate project values at inception, along with clear declarations on scope, value and project timelines, are essential to ensure continuity of cover. Without this, contractors risk bearing significant reinstatement costs following losses if policies are not aligned to the actual risk.”
He adds that other common missteps include skipping surveys and maintenance, which can trigger wear and tear or poor workmanship exclusions, as well as attempting to self-insure high-risk elements without sufficient financial reserves.
This is why insurance should form a central part of broader risk planning. “Early involvement of brokers and insurers helps align cover with project requirements, while surveys, site-specific risk assessments, quality controls and contingency planning strengthen resilience,” says Barker.
He adds that specialist engineering insurers can assist in underwriting projects effectively, handling claims and providing risk support. “Regular policy reviews and thorough documentation are also critical to ensure claim preparedness and accurate declarations.”
Barker notes that essential cover in this environment typically includes Contractors All Risk, Contractors Plant and Equipment, Public Liability, Professional Indemnity, Construction Guarantees, Erection 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 welcomed signs of stability, Barker believes the sector’s recovery is likely to be phased. “The ACI refers to stability, rather than robust growth. Contractors should therefore prioritise disciplined preparation over reactive cost-cutting to position themselves competitively for when planned government infrastructure spending is realised in the market.
“Practical steps that businesses can take now include strengthening financial and contractual discipline, investing in quality assurance, site security and skills development, and optimising insurance cover through regular reviews and specialist partnerships,” says Barker. “Collaboration across the value chain – principals, contractors, insurers, and government – will be key to unlocking South Africa’s infrastructure potential,” he concludes.