The need for global infrastructure has reached a critical point where dramatically increased investment is needed on every continent. Yet in the near term, it’s unlikely that traditional government spending will accelerate to address the situation. Having said that, the recent election results in several key countries, along with potential changes in government financing, means there should be a renewed emphasis on addressing the significant backlog of needs.
For this to happen in the developed world, there are critical areas that need to be addressed in order to bridge the global infrastructure gaps:
- A renewed emphasis on streamlining processes so projects start much quicker than in the past, including the contracting process itself, permitting, balancing environmental needs and fast-tracking funding in a number of areas.
- A renewed emphasis on basic infrastructure including water, power and internet/communications. Exciting things are happening around alternative power sources and storage ability, enhanced internet capability and local water systems, which will improve
- Greater use of technology to drive down costs and shorten schedules in big infrastructure, through better design tools, LEAN technologies and common scheduling platforms such as BIM.
- Attracting new workers and/or training current workers with the new skills required to leverage the technology advances in the industry.
In the U.S., the challenge of infrastructure investment has also been hampered by:
- A lack of consistency around contracts. In other parts of the world, alternative approaches are routine and contracts well understood and standardized. This should be a key focus for the U.S.
- An increase in funding for infrastructure from traditional government funding models to alternatives including P3, unsolicited bidding in many jurisdictions, increased use of tolls and user-financed models. The needs of the U.S. have reached a point where alternative funding sources will become more accepted as traditional government funding is uncertain.
- Other parts of the world aren’t waiting for the developed countries to move on infrastructure. China has built a strategy of tying global commerce together with a transformational program called One Belt One Road. This program is truly global with different regions and countries around the world partnering to invest in roads, rails, ports, pipelines and other infrastructure joining China to Central Asia, Africa, the Americas and beyond. An example is the $62 billion China-Pakistan economic corridor (Cpec), a sprawling web of motorways, power plants, wind farms, factories and railways that supporters say will spark an “economic revolution” and create up to one million jobs in Pakistan.
The role of insurance:
- Insurance plays a vital role in assessing, managing, securing projects and protecting them with risk transfer. There’s significant market capacity to provide long-term risk solutions for projects to enable them to be financed efficiently and to assure completion and cash flow protection.
- Risk discussions at the onset of projects has to be encouraged as the market has significant experience (both good and bad) on project risk allocations and insurance solutions. Insurance plays a vital role in contract development when brought in early enough to avoid unnecessary delays.
- Surety is developing innovative ways to bring alternative security to projects which traditionally have relied on bank letters of credit to provide liquidity to keep projects on track in the event of contractor financial difficulties.
- The industry is focusing on more innovative approaches to construction risk. Advances in Geographic Information Systems (GIS), mapping services, drones and sensors are providing the optics necessary to better understand exposures in some of the more remote areas of the world, and should be better utilized.
As part of our continued effort to understand the risks facing the construction industry, and in particular, infrastructure needs, Willis Towers Watson has launched our Construction Risk Index. We sought the views of over 350 senior executives about the megatrends they believe will shape the future of their industry. The survey highlighted many of the risks which impact infrastructure including concerns about political uncertainty, financing, labor shortages and the impact of mega projects on cost certainty.
Willis Towers Watson is now using the insight gained from the index to better deliver risk services and develop insurance solutions to help reduce risk uncertainty around infrastructure. Please follow this blog to hear about further opportunities for the construction industry and our thoughts on how best to take advantage of them. You can read the full findings of the Risk Index here.