GLOBAL CONSTRUCTION PRACTICE

EMERGING RISKS
IN CONSTRUCTION
EXPERT PERSPECTIVES ON THE
CONSTRUCTION INDUSTRY
CONTENTS
ff PERSPECTIVES ON INNOVATION #2

Disruptive Technology Brings Risk and Opportunity to Infrastructure Projects 5

How Data and Technology Will Fuel Megacities of the Future 9

Construction Machines in the Digital Age 13

The Rising Importance of the “Secondary City” 17

Internal Threats: Five Ways Employees and Business Partners Put Intellectual 21
Property (IP) and Data at Risk

ff ENVIRONMENTAL IMPACTS 24

Spending More to Make Infrastructure Sustainable ###27

Dramatic Drop in Global Coal Plant Construction 31

In the US, Renewable Energy Surpasses Nuclear Generation…For Now 35

ff ECONOMIC IMPACTS 38

Preparing Bankable Infrastructure Projects 41

Asia Needs US$26 Trillion in Infrastructure Investment from 2016-2030 45

Road to Economic Growth Paved with Efficient Infrastructure Investment 49

Commercial Insurance Rates Continue Decline in Light of Global Market Forces 55

Deconstructing a Different Kind of “Nuclear Spill” 59

ff ABOUT MARSH’S GLOBAL CONSTRUCTION PRACTICE 62

INTRODUCTION
The world continues to change at an increasing pace, and construction, the world's
largest global industry, is under pressure. Shortages in housing, utilities, and modern
transportation struggle to keep up with our rapidly expanding and increasingly mobile
population. Unprecedented macroeconomic and geopolitical forces are meeting financial
and environmental challenges head on, stretching the limited skills and commodities in the
construction industry. As a result, companies in this sector now need to look afresh at the
emerging risks they are facing.

The articles contained in this publication examine some of these crucial issues and aim to
provide critical insight into the risks and opportunities facing construction companies as they
navigate through the profound transformation that is under way.

These articles first appeared on BRINK – the digital news service of Marsh & McLennan
Companies’ Global Risk Center, managed by Atlantic Media Strategies. BRINK gathers timely
perspectives from experts on risk and resilience around the world to inform business and
policy decisions on critical challenges.

I hope you find Emerging Risks In Construction: Expert Perspectives on the Construction
Industry informative and valuable.

Yours sincerely,

JON MARSH

International Chairman
Global Construction Practice

Marsh • 1
PERSPECTIVES
ON INNOVATIO
ON
 Perspectives on Innovation

DISRUPTIVE
TECHNOLOGY
BRINGS RISK AND
OPPORTUNITY TO
INFRASTRUCTURE
PROJECTS
AUTHOR: ADRIAN PELLEN, INFRASTRUCTURE SEGMENT LEADER,
US AND CANADA, CONSTRUCTION PRACTICE AT MARSH

The infrastructure industry has INNOVATION TRANSFORMS

not typically been known for its INFRASTRUCTURE DESIGN
embrace of new technology. In a Innovation dictates that infrastructure needs to be
recent paper,1 the World Economic conceptualized and designed differently.
Forum (WEF) attributed the
Consider something as basic to society as roads, and
industry’s relatively slow adoption add to that the coming of autonomous vehicles—both
of technological innovation to a for passengers and in trucking. Because autonomous
number of internal and external vehicles rely to a large degree on sensing technology,
we need to consider if roads, bridges, tunnels, and
challenges in the engineering other infrastructure are being designed adequately
and construction sector: “The for this new means of transportation. Beyond
persistent fragmentation of the efficiency gained from proper design, what are the
potential liability implications for inadequate design?
industry, inadequate collaboration
with suppliers and contractors,
the difficulties in recruiting Change is inevitable and innovation
a talented workforce, and is disrupting the way we design,
insufficient knowledge transfer
from project to project.” build, operate, and use
infrastructure.
Change is inevitable and innovation is disrupting the
way we design, build, operate, and use infrastructure. Big data and analytics have also infiltrated how
Whether it’s in civil infrastructure—roads, bridges, we design infrastructure. For example, building
pipelines, and ports—industrial infrastructure, or information modeling (BIM) is realizing broader
social infrastructure, technological advancements applicability as its technology develops. Historically
are creating efficiencies in the way we operate. While used for 3D modeling in the design phase, continuing
technology adoption can help to promote sustainable innovations in BIM will enable faster and better
growth, there are also risks to be managed. infrastructure development, as well as provide
insights into how a project will perform throughout
its life cycle, allowing a view into a project’s future risk
profile. This innovation in BIM promotes efficiency by
allowing those who design infrastructure to provide
real-time support to those building it.

Marsh • 5
Perspectives on Innovation

BUILDING SITES BENEFIT

FROM NEW TECHNOLOGIES
Construction sites are incubating grounds for a range
of technology innovations in such areas as wearables
and telematics.

Wearable technologies, for example, are rapidly

changing the work landscape and promoting safety,
accuracy, and efficiency. Among the advancements
in construction technologies is the smart hard hat,
which allows technicians to project 3D images in the
natural environment, such as a bridge span, through
augmented reality (AR)—the same technology behind
Pokémon Go.

Enhanced safety vests borrow concepts from

vehicle telematics. These vests are equipped with
GPS and radio-communicating technology to
enhance workforce safety and prevent injuries by
warning users as they enter hazard zones.2 It’s not
hard to imagine a future in which workers wear OPERATION AND
an exoskeleton that will improve safety, enhance UTILIZATION OF
efficiency, and allow for the instantaneous exchange INFRASTRUCTURE WILL
of data.
CHANGE
Innovation dictates that Once these innovative infrastructure assets become
operational, they will likely include embedded
infrastructure needs to be technologies, such as the intelligent transportation
systems (ITS) used on many highways and freeways.
conceptualized and These incorporate a variety of technologies including
Bluetooth, video, and other wireless systems to
designed differently. promote efficient traffic management, allow for toll
tracking and billing, enhance emergency response
times, and assist law enforcement. With the coming
Technology will also enable infrastructure to be of autonomous vehicles, it’s likely that additional
built by fewer humans—potentially enhancing sensing technology will be needed to improve safety.
safety and promoting resource efficiency. Balfour
Beatty, a large international construction firm, Beyond impacting how society uses and engages with
suggests that by 2050 some infrastructure will be roads and other infrastructure, interconnectivity will
built without physical human labor.3 It is not difficult allow individual components to interact on an almost
to anticipate that in our lifetime infrastructure “live” basis. For example, it’s anticipated that, in the
will be designed and constructed using 3D near future, individual infrastructure components will
printing and installed by robots and mechanistic contain monitoring technology that will provide real-
devices that operate with artificial intelligence. time information about their operating efficiency and
life span. When such components need replacing, the
sensors will put in the order.

There is no question that innovation in robotics,

automation, and other technology will continue
to alter the way infrastructure evolves and the way
we use it. These technologies promote efficiency,
connectivity, and sustainable growth.

6 • Emerging Risks in Construction

 Perspectives on Innovation

INFRASTRUCTURE Construction sites are incubating

RISKS ALSO SHIFT
With innovation comes risk, however,
grounds for a range of technology
as technological disruption also
increases volatility and exacerbates
innovations in such areas as wearables
emerging issues, including those
related to social stability as well
and telematics.
financial viability and cybersecurity.

Social disruption: If innovation does Cybersecurity: Because infrastructure Thankfully, there is a bustling market
eventually displace large numbers of now needs to be able to integrate with emerging in the risk management
construction crews, drivers, or other and connect to technology, such as and insurance industry to address
workers, it’s possible there could be smart buildings, autonomous vehicles, cybersecurity. In addition to consulting
considerable social unrest in some parts and transit systems, cybersecurity risks services developed to assess and
of the world. According to executives become more of a threat than in the manage cybersecurity exposures,
participating in a recent World Economic past. The interconnectedness of our insurers have developed products to
Forum event,4 it will be critical for infrastructure through the Internet of transfer the risks that infrastructure
industry to plan ahead by investing in Things (IoT) will face cybersecurity risks. stakeholders face, as well as support
education and training for workers whose Infrastructure may increasingly become a risk mitigation by establishing incident
jobs could be made redundant due to target for sophisticated organized crime response plans. These products, which
technological advancement. looking to extract sensitive information. are triggered by cybersecurity breaches
Firms with proprietary software, systems, whether motivated by financial crime
Financial viability: As technology and infrastructure may become targets of or terrorism, can cover expenses
advances, will the infrastructure we corporate and political espionage. related to extortion, property damage,
design and build today be useful in 20 or financial loss related to a data and
to 30 years? How quickly will it become Hackers have long probed for privacy breach or network outage.
obsolete? What if we have flying cars? weaknesses in critical infrastructure.
That may sound harebrained at face value, The ability for cyber events to affect One recent estimate from the
but compare the world we live in today infrastructure has grown, as seen in Global Infrastructure Hub, a G20
to what people thought was possible just two recent global attacks involving initiative, says there is a need for
20 or 30 years ago. Once we integrate malware—WannaCry and Petya/ US$94 trillion in infrastructure
technology into physical infrastructure, GoldenEye. Infrastructure from hospitals investments by the year 2040.6
it can quickly become outdated. to marine ports suffered financial losses
and damage due to those events. At the same time, it’s clear that rapid
This is particularly important in technological advancement is changing
the context of privately financed Perhaps the most frightening risk the way we design, build, operate,
infrastructure, where the private sector from an infrastructure perspective and use infrastructure. Innovation in
takes on the life-cycle management is that of cyberterrorists seeking to infrastructure will enable growth and
of infrastructure. Obsolescence is of invoke fear. In the age of digitization promote economic, environmental, and
particularly heightened risk to private and IoT, there are legitimate concerns social vitality.
concession companies who have that cyberterrorists could gain access
assumed revenue risk (for example, to flood control gates, traffic lighting But advancement comes with risks—
tolling) based on financial models that systems, public transit systems, or even including social disruption, obsolescence,
were unable to incorporate disruption the doomsday scenario of shutting and cybersecurity threats. These risks
in infrastructure utilization. The firms the electric grid down completely. can be mitigated by forward-thinking city
exposed to the financial risk related to Cybersecurity continues to be one of planning, investment, and integration of
infrastructure obsolescence could be the global risks of highest concern.5 education into our workplace, as well as
builders, engineering firms, and/or equity an increase in cyber-oriented defenses.
firms and financiers developing and Today’s new technologies almost always
maintaining infrastructure. increase connectivity, including in the THIS ARTICLE FIRST APPEARED
ways we build, operate, and maintain ON BRINK.
infrastructure. Companies involved in
infrastructure can no longer afford to
think of cyber risk as an afterthought,
but need to adopt strong cyber-risk
management practices from day one.

Marsh • 7
 Perspectives on Innovation

HOW DATA AND

TECHNOLOGY WILL
FUEL MEGACITIES OF
THE FUTURE
AUTHOR: TERRY D. BENNETT,
SENIOR INDUSTRY STRATEGIST FOR CIVIL INFRASTRUCTURE AT AUTODESK

What will cities look like by the year DATA AND THE MEGACITIES
2050? Will they be like those in OF THE FUTURE
South Korea, centered on a digitally Neighboring cities are coalescing in their shared
connected retrofit of existing infrastructure and mutual impact of their economies.
Power lines, roads, transit, water systems, and safety
society?1 Will they parallel the shiny
don’t stop at city limits,7 and municipalities are facing
new cities of Dubai or Singapore? transformation at unprecedented rates. As a result,
Or could they possibly move there’s a lot of debate about who decides the way
forward and what that looks like.
underground or under the oceans?2

Today, innovative cities, such as Curitiba, Brazil,3 are The challenge for cities around
rethinking entire mass-transportation strategies while
debating visions of autonomous cars and drones.4 The the world is: How do they grow?
most basic infrastructure needs have always been about
how people want to live and move around. How do they perform and
It’s also about how things move around. FedEx sees transform simultaneously?
e-commerce increasing by 26% from 2016 to US$2.4
trillion worldwide by 2018,5 which adds pressure
to upgrade roads, highways, and port/airport When it comes to designing infrastructure, one
infrastructure for vehicle use—autonomous thing is for sure: Big data collected through the
or otherwise. IoT will play a key role in growing the megacities of
2050. “Big Data is all the information around us that
Add to this mix myriad technology disruptions, such as is being collected in various streams,” says Steph
sensors, big data, and the Internet of Things (IoT), which Stoppenhagen, smart cities business development
can help adjacent cities work together like cogs in a director for Black & Veatch. “If you use a metrocard
bigger machine. to get on a subway, then the system knows when you
entered, where you went, and the route you took. How
is this helpful? By recognizing if the subway service
But why is that important? Planners have been
worked. Was it successful? If so, you will do it again
considering urbanization pressures, often in areas
and again. That is one example of using data to watch
with little room to increase building or infrastructure
people’s movements—creating smarter mobility.”
capacity.6 One alternative is analyzing collected data
to determine how to densify corridors of population
between neighboring cities, with mass transit creating Not all data easily translates into useful or actionable
megaregions that could easily become home to information, though. To address the changing urban
millions more. landscape, information itself should be seen as a form of
infrastructure—one that can be used for better planning
to connect cities within a bigger system.8
The challenge for cities around the world is:
How do they grow? How do they perform and
transform simultaneously?

Marsh • 9
Perspectives on Innovation

The starting point is people, not technology.

Planning, design, and investment decisions—along
THE FUTURE OF PLANNING
with supportive policymaking—can be informed and IS 3D
expedited via infrastructure visualization, simulation, Building Information Modeling (BIM) gives meaning
and analysis. The rise of big data and advanced to the vast information available to architects and
modeling technology make it possible to plan and engineers, urban citizens, and decision-makers.
prioritize infrastructure investment with greater Advanced 3D modeling allows people to analyze
foresight, better communicate potential outcomes, complex information, including risks and problems
and yield measurably better results.9 at a system-versus-asset level. What that means is
thinking about what the whole infrastructure system
Creating smart cities10 means more than using is trying to accomplish versus goals of its individual
the IoT to optimize services or communicate components. That information helps architects
information to residents. It should be a construct and engineers enhance designs so individuals,
used to frame local government decision-making firms, and cities can meet their “smart” connected
around city transformation.11 While 2050 seems far goals, bringing neighboring cities together.
off, for existing cities that must perform, transform,
and compete with brand-new cities, it’s pretty Consistent use of 3D in-context models
close at hand. Cities need to evolve to develop coupled with simulation software can create
sustainably; improve resilience; meet citizens’ a hypothetical but realistic scenario of the
rising expectations; and attract investment, new physical infrastructure’s performance. It
businesses, and talent. The good news is that data establishes a concrete vision in 3D, setting the
and technology will make work and life better context for discussing goals and performance
by creating a well-connected community. measures that everyone can understand.

But smart investment and policy decisions are crucial Technology lets people see with both eyes open—
to planning, and moving to long-term investment gaining perspective and depth—rather than with
(versus grant funding) is key. To achieve that, cities one eye closed, which gives perspective but no
must connect: depth. The depth comes from information streaming
through technology: Information-rich models
•• Projects: Developments that build toward the can help stretch infrastructure investment dollars
unified city vision12 and meet broader economic throughout the design and construction phases.
objectives, such as accessibility, jobs, affordable
housing, and healthy environments.
Going forward, using 2D designs in an ever-changing
•• Teams: Collaborative efforts functioning across all 3D world won’t work. Using 3D BIM processes will be
levels of government to unlock public and private a critical skill set to build the right infrastructure for a
infrastructure investment, leveraging big data to megacities-of-the-future vision.
track the performance of infrastructure.

•• Insights: New technologies that revolutionize

how cities are planned, function, and grow
2050 seems far off, but
the economy by connecting everyone at
the beginning of project planning.
data and technology will
•• Outcomes: Projects that meet planning/business- soon make work and life
case measures and use cost-benefit analyses to
meet economic objectives. better through a well-
connected community.

10 • Emerging Risks in Construction

 Perspectives on Innovation

CREATING SMART FOUNDATIONS TOGETHER

Cities are often overwhelmed by big data and lack the By collecting and analyzing more information,
ability to make the information actionable. A benefit civil engineers will better predict what’s
of BIM is that it can manage connections among all needed to manage bridges, roads, and other
the data useful for complex city design projects—from infrastructure assets, prolonging their lifecycles.
the micro to macro level. As populations increase and demand for
infrastructure rises, future-proofing assets
Through an immersive collaboration, the general must take into account true lifecycle costs.
public will better understand the future of
infrastructure design. This way of stepping into, Smart infrastructure connections at a personal,
around, and through infrastructure virtually is community, metropolitan, or even national level—
becoming the norm. It aids in faster design-concept underpinned by technology—provide the capability
creation, vetting, and approval, and it reduces for monitoring and measuring data. Then the analysis
stakeholder pushback. of data feedback can yield positive steps to address
issues (whether through human or machine actions).
In this era of connected BIM—where information
forms the infrastructure for planning, designing, and This changes the vision of cities and provides
maintaining manufactured and natural systems— the foundation for more holistic planning. In the
the objective is to create integrated and resilient connected cities of 2050, all kinds of infrastructure—
infrastructure. Then, cities will be able to withstand energy, water, transportation, buildings, and
and recover more quickly from natural and human- governance—will “talk” to each other to prioritize
caused disasters—and grow to support their future.13 needs, optimize performance, minimize energy use,
and make life more enjoyable and productive for the
people who live in and travel between cities.

THIS ARTICLE FIRST APPEARED ON BRINK.

Marsh • 11
 Perspectives on Innovation

CONSTRUCTION
MACHINES IN THE
DIGITAL AGE
AUTHOR: ROMED KELP
PARTNER AT OLIVER WYMAN, AND DAVID KAUFMANN, PARTNER AT OLIVER WYMAN

At first glance, giant earth- NEW ERA, NEW VALUE

moving excavators and The changes will open up new possibilities for the
bulldozers would not appear industry after a few lean years. European construction
equipment sales peaked back in 2007, while global
to have much in common with
sales reached a high of US$102 billion in 2011 and
the microchip-based worlds of were just US$70 billion in 2016.1 Global demand is
drones and multi-dimensional expected to grow at about 5% per year until 2020, but
this will still leave construction equipment sales well
imaging. But in the digital
below its peak. Digitization—whether or not it boosts
age, they will all be connected sales of machinery—will give equipment makers an
and have to work as a team. opportunity to broaden their product offerings and
provide additional sources of value. Players that seize
the initiative will do better in the new era than those
Construction equipment itself has lagged in that wait for change to happen.
digitization, but it is about to undergo the same
digital disruption that has hit information-based
industries and is now being felt in the automotive and The first wave of digitization is already
commercial-vehicle sectors.
arriving in construction machines,
The first wave of digitization is already arriving
in construction machines, which are becoming
which are becoming increasingly
increasingly automated and connected, enabling
operators to deploy them more efficiently. A bigger
automated and connected.
change will come as construction projects go digital,
in particular through building information modeling Most of today’s construction machines track
(BIM), which will accelerate the deployment of smart, information such as idle time and fuel consumption,
connected heavy machinery. enabling managers of building sites and public-works
projects to make better decisions on the use of their
Equipment manufacturers’ success will be fleets. However, a first major change will come from
determined by how effectively they apply digitized part or full machine autonomy going mainstream
machines in this connected ecosystem. Digitization after 2020. A compactor, for example, will be able
is not about to replace construction machines, but to adjust its operations to different surfaces and
customers are likely to select the equipment providers environments, such as the presence of nearby
that best execute the new digital possibilities. sensitive structures. It will also be able to carry out
much of its work automatically—or at least with
minimum human input, often remote. Predictive-data
diagnostics will make maintenance smoother and less
costly: To avoid unplanned downtime, for example,
components will be replaced before they malfunction,
but not so early as to be wasteful. Operators will also
be able to coordinate groups of machines more easily,
so that they operate as one, speeding up each phase
of a project.

Marsh • 13
Perspectives on Innovation

THE CONSTRUCTION SITE OF THE FUTURE

The second stage, which will begin in the early-to So BIM is both a challenge for makers of construction
mid-2020s, will take fleet coordination even further, machines—because it demands more advanced,
using operational and performance data from digitized equipment—and a means to help customers
equipment to help coordinate construction projects. boost the efficiency of construction and reduce
The construction schedule might then be adjusted costs. Construction equipment companies will need
iteratively, taking into account various factors, to adopt and integrate a “smart construction site”
such as the work being done by the machines and approach, where all aspects of building (including
physical location of the machines needed for the machinery) are connected to the BIM and to each
next stage of the work. Construction companies other. And to leverage new efficiencies and reduce
could ask machine manufacturers to create costs, they will have to stop operating in silos.
common data standards to facilitate scheduling
that involves different makes of equipment.

A third major change will come as construction

Engineering and
machines acquire new, highly automated capabilities
and BIM goes mainstream. BIM uses a virtual
construction costs are
construction site, consisting of a digital model of a
building project that includes construction schedules
expected to be reduced
and costs. The modeling enables construction
companies to implement a version of lean
by around 20% thanks
production, with just-in-time delivery of materials
and components. Engineering and construction costs
to better coordination of
are expected to be reduced by around 20% thanks to
better coordination of all the input factors.
all the input factors.

14 • Emerging Risks in Construction

 Perspectives on Innovation

CONSTRUCTION MACHINERY FIRMS NEED

TO PUSH DIGITAL SOLUTIONS
Equipment manufacturers need to figure out the Strategic intent will not, however, be sufficient.
best approach to succeed in this new era. The new construction capabilities will generate
It is essential for them to digitize their machines, new competition, both from traditional rivals in the
so that they can be connected to the digitized equipment industry and from new digital players and
environment. But that alone will not be enough. software systems providers. Surviving will require
Digitized machines will be more transparent quick, effective implementation of digital tools and
to their customers in terms of performance, services, which will in turn require new skill sets.
breakdowns, and costs. Hence, new strategies will To stay ahead—and even keep up—equipment
have to be found to cope with this transparency. makers will need to engage with a world far beyond
the traditional construction site.
Equipment manufacturers that limit themselves to
basic digitization might find their offerings treated
as commodities. They will provide more value if they
integrate further capabilities and fully become part
of the “smart construction site.” These could include
Equipment manufacturers need to
digital systems to schedule construction in real time
and coordinate fleet performance beyond their own
figure out the best approach to
machines. Or, they could provide support services
such as drone-based monitoring of performance and
succeed in this new era.
progress. Some equipment makers might try to offer
all such services in an integrated package to provide
a strong, differentiated offering and capture a large
portion of the new value pool. (See Figure 1.) THIS ARTICLE FIRST APPEARED ON BRINK.

Figure 1: The Future of Digitized Construction

Source: Oliver Wyman Analysis

CONSTRUCTION EQUIPMENT SUPPORTING

FUNCTIONALITY SERVICES
• Digital data availability. • 3D modeling.
• Connectivity and interfaces. • Drones and
• Automated operation. satellites.
• Databases.

COORDINATION
• Fleet performance
optimization.
• Construction scheduling.
• Real-time coordination.

Marsh • 15
Disruptive Technology

16 • Emerging Risks In Shipping

 Perspectives on Innovation

THE RISING
IMPORTANCE OF THE
“SECONDARY CITY”
AUTHOR: DARRYLE ULAMA,
RESEARCH ANALYST FOR HYPERLOOP ONE

There’s a popular saying in There are about 2,400 second-tiered cities

worldwide, and nearly two-thirds are in Africa
Chinese urban geography and Asia. Additionally, about half of all urban
and architecture: “If you want dwellers live in cities with a population of fewer
to understand 5,000 years of than 500,000 people. Some are gateways to
global trade, while others specialize in valuable
Chinese civilization, look at sectors such as government administration,
Xi’an, 1,000 years look at Beijing, resource extraction, heavy manufacturing,
modern China look at Tianjin.”1 and technology. Pittsburgh, Bengaluru, and
Barcelona are all must-watch secondary cities,
as are Abuja, Medellin, and Stuttgart.
This adage might surprise many readers outside of
China, as Tianjin, like many cities that don’t bear
the name Beijing or Shanghai, continues to live in Urbanists take note: Secondary cities
the cognitive shadow of its larger and well-known
counterparts. But this port city to Beijing has played a like Tianjin will have an outsized role
pivotal economic role since the first concessions were
granted to European powers following the partial end in the coming decades.
of the Second Opium War, effectively opening China
to foreign trade.
Despite their more limited fiscal capacity, these
Today, Tianjin is among the country’s five largest cities’ ambition to climb the ranks of world cities has
urban areas, and it is an industrial powerhouse unleashed a wave of experimentation with a host of
with a GDP per capita that is outpacing the national new urban policies, financing tools, initiatives, and
average. In 2016 alone, more than 400 Beijing-based partnership strategies.
companies opened offices in Tianjin and are expected
to invest US$23 billion in the city.2 Travel between There needs to be more study of the secondary
Tianjin and Beijing is so high that a second high- city. Information and data is often lacking, making
speed rail link is currently under construction. strategic planning and research difficult. Much of
the talk at October’s UN Habitat III conference in
Urbanists take note: Secondary cities like Quito, Ecuador, emphasized the headwinds for
Tianjin will have an outsized role in the coming secondary cities.3 This is a shame because such cities,
decades. Intermediate cities are among the armed with the right insights, could avoid the earlier
fastest-growing and most creative places in mistakes of larger metros and often act more quickly
the world, and they’re often the economic to implement projects.
engines of their larger counterparts.
One of the highest priority projects underway, as
Tianjin has shown, is to build more connectivity as
a means to enhance competitiveness and attract
talent and investment. The method and degree of
connectivity will vary: Some cities will need to focus
first on digital infrastructure, while others must invest
in physical transport links—potentially a leapfrog
technology such as the hyperloop.

Marsh • 17
Perspectives on Innovation

DEFINING THE SECONDARY CITY

University of North Carolina professor Dennis Subnational cities: Centers of local government,
Rondinelli is credited with coining the term industry, agriculture, tourism, and mining.
“secondary city” in the 1980s in his research on These cities are the most common and hold
rural economies surrounding these cities. important economic and functional roles. Think
The characteristics of secondary cities vary across Vancouver, Philadelphia, Basel, and Milan.
national contexts, and there is a lack of consensus
on its definition. Typically, the population size falls City clusters: Satellite and new town-cities
between 10% to 50% of the country’s largest city,4 that surround larger metropolitan regions.
and the residents often assume administrative, These settlements usually develop alongside
economic, or logistical roles outside of the country’s decentralization and firm relocation to areas less than
leading metropolitan area. 50 kilometers from historic city centers. The satellite
town Navi Mumbai is an example of this.
Cities Alliance, a joint World Bank and
UN-Habitat initiative,5 has produced a body Corridors: Urban growth centers planned or
of literature on secondary cities and divides developing along major transport corridors.
them into three spatial categories: These cities are among the fastest growing and
are associated with improvements in transport
infrastructure. New cities rising along the Silk Road
Decision-makers all over the world between Asia and Europe fall under this category.6

are realizing the importance of

connecting dominant cities with
their secondary counterparts to
create highly productive and
competitive urban clusters.

18 • Emerging Risks in Construction

 Perspectives on Innovation

CITY LINKING AS A STRATEGY FOR GROWTH

Decision-makers all over the world are realizing the The argument for city-to-city linking comes down
importance of connecting dominant cities with their to increasing opportunities for economic exchange.
secondary counterparts to create highly productive Connectivity allows secondary cities to integrate into
and competitive urban clusters. regional labor and investment pools and access new
supply chains and consumer markets.
“The functional federation of cities across political
borders, united by infrastructure and technology City-to-city links could also lead to rebalancing
systems, is likely to become a major feature of global growth and mitigate the capacity burdens on larger
cities by the mid-twenty-first century,” says Greg cities in housing and transport infrastructure. Lastly,
Clark of the Brookings Institution. linked municipalities could result in more coordinated
economic and infrastructure strategies for regional
In New York, Governor Andrew Cuomo’s Upstate development. With the advent of the hyperloop, the
Revitalization Initiative aims to support intra- potential impacts are even greater, allowing for wider
regional connectivity through expanded Bus Rapid spatial opportunities for employment and living, and
Transit lines.7 China implemented an aerotropolis- the creation of “mega-regions.”10
based development strategy in Zhengzhou,
the likely birthplace of your iPhone,8 in just one Several of the Hyperloop One Global Challenge
piece of its colossal New Silk Road project. An EU semifinalists have offered routes that connect key
report on secondary cities found that connectivity secondary cities to primary cities. In South Korea, a
is highly correlated with per capita GDP.9 team has proposed to link Busan, an important port
city, to the capital, Seoul, which contains almost a
fifth of the entire country’s population. In the US, a
regional planning commission wants to link Chicago
to Columbus and Pittsburgh, creating a Midwest
megaregion. An architecture firm proposes to
connect Guadalajara to Mexico City, and a student-
led team in the UK wants to link Edinburgh to London.

These proposals demonstrate that we should take

seriously the considerations and future development
of second-tiered metro areas and promote policies
and ideas that target inter-city connections.

THIS ARTICLE FIRST APPEARED ON BRINK.

Marsh • 19
Disruptive Technology

20 • Emerging Risks In Shipping

 Perspectives on Innovation

INTERNAL THREATS: FIVE

WAYS EMPLOYEES AND
BUSINESS PARTNERS PUT
INTELLECTUAL PROPERTY
(IP) AND DATA AT RISK
AUTHOR: PAMELA PASSMAN,
PRESIDENT AND CEO OF CENTER FOR RESPONSIBLE ENTERPRISE AND TRADE

When a cyber-attack makes the headlines, it’s often because the

perpetrators are a mystery. We imagine hackers operating out of smoky
rooms in distant lands—and sometimes that turns out to be accurate.

But it is also true that the guy whose office is just down
the hall past the soda machine may be as great a threat
Many companies lack appropriate
as a remote criminal. Insiders—company employees as
well as contractors and business partners—can present a
limits on employees’ access to
significant risk for misappropriation of sensitive information
and intellectual property. Whether they are operating out
confidential, sensitive information.
of malice or ignorance, their actions can be disastrous for
company profits, reputation, and future business plans.
Mobility: In today’s globalized economy, professionals in
many industries have unprecedented opportunities to move
KEY FACTORS FUELING between companies and work in different countries. In an
INSIDER RISK increasingly common narrative, employees with access to
trade secrets walk out the door with reams of downloaded
Access: Many companies lack appropriate limits on documents that they aim to provide to competing
employees’ access to confidential, sensitive information— companies or foreign governments. The greatest risk comes
items including customer lists and contact information, from employees who are disgruntled, leaving amid layoffs
intellectual property, and private information about or similar upheaval, or returning to their native country.
customers, employees, and business partners. In a recent Typical of these cases is one recently reported by South
report by the independent Ponemon Institute,1 71% of “end Korea’s Yonhap News Agency.2 A court in Seoul indicted
users” (employees on the system) said they have access to a man identified only as Kim, a high-level automotive
company data they should not be able to see, and 54% of engineer, for passing classified documents from his former
them said that the access was frequent or very frequent. employer to competing carmakers in China. The documents
The vast majority of IT professionals surveyed said that he transferred contained details of safety and performance
their organizations don’t have a “need-to-know” policy of testing technology that the South Korean company had
managing access, or don’t strictly enforce it. developed. There are many similar cases in a wide array
of industries.

Marsh • 21
Perspectives on Innovation

Risky digital behavior: In the Ponemon survey, only Accountability gap: Many companies do a
47% of information technology practitioners surveyed poor job of conveying their expectations around
believed that employees in their companies take confidentiality and security to employees and
data protection seriously. That belief is supported by supply chain partners. Monitoring to see whether
the response to another question by the non-IT set: appropriate procedures are being followed is even
76% of those surveyed said they saw no problem weaker. In some sense, it’s no wonder employees
with loading confidential documents onto their are not vigilant about protecting intellectual
unsecured personal computers, smart phones, and property and preventing cyber breaches.
the public cloud. By doing so, they may unwittingly
open the door to cyber theft. Another common way Insider advantage: A combination of the
that internal and supply chain employees may create above factors and first-hand knowledge of a
holes in security is by loading their own software company’s information system, and a failure
onto work computers. If that software is pirated, it to monitor insider behavior lead to some
may contain malicious code designed to search their of the most damaging data breaches.
systems for valuable data.

FIGURE 1: Is the Protection of Company Critical Information a Priority?

Source: Ponemon Institute

In percent, from survey of IT professionals

IT END USER
and company end users

35

30

25

20

15

10

0
VERY HIGH HIGH MODERATE LOW NONE

22 • Emerging Risks in Construction

 Perspectives on Innovation

Here’s how one such case is playing out in

Japan: Police arrested 39-year-old Masaomi
In the Ponemon survey, only 47%
Matsuzaki last July on suspicion of stealing
data linked to more than 20 million customers
of information technology
of Benesse Corp., which provides education
materials and services for students.
practitioners surveyed believed
Matsuzaki, who was working as a systems engineer
that employees in their companies
for a company affiliated with Benesse, reportedly
loaded the data onto his smartphone and then sold
take data protection seriously.
it to middle men who resold it to a few hundred
other companies to exploit for marketing purposes, And, importantly, a system to address security risk
according to a Kyodo news agency report.3 posed by some insiders must be balanced with
the need to facilitate the work of the majority of
employees and partners who operate in good faith.
The case sparked outrage in Japan and a national
debate about improving privacy laws. Although the
perpetrator is now in custody, Benesse continues The digitized, fast-evolving global economy
to reel from the fallout. Parent company Benesse presents unprecedented opportunities. But
Holdings announced in December 2014 that it was capturing its possibility comes with the need
cutting 300 jobs to compensate for an expected net to address associated risk. Taking a systematic
loss of between US$8.3 million and US$75 million in approach—with dedicated strategies to address
the current business year because of the data breach. risks posed by “insiders”, in concert with plans
to stop intrusion and associated damage by
“outsiders”—is the most pragmatic and cost-effective
Clearly, the threat from insiders cannot be remedied
way for companies to compete in this changing,
with an old-fashioned firewall. It requires a solution
and often challenging, business environment.
that is a multi-faceted, proactive approach—one
that involves IT security design as well as security
procedures, contract provisions, training, and THIS ARTICLE FIRST APPEARED ON BRINK.
monitoring. These measures must be based on a clear
picture of where valuable information assets reside,
whether customer data or intellectual property.

Marsh • 23
ENVIRONMENT
IMPACTS
TAL
New Demands

26 • Emerging Risks In Shipping

 Environmental Impacts

SPENDING MORE
TO MAKE
INFRASTRUCTURE
SUSTAINABLE
AUTHOR: AMAL-LEE AMIN, CHIEF OF THE CLIMATE CHANGE AND SUSTAINABILITY DIVISION AT THE INTER-
AMERICAN DEVELOPMENT BANK, AND JANE AMBACHTSHEER, PARTNER, MERCER INVESTMENTS AND
MEMBER OF THE FINANCIAL STABILITY BOARD TASK FORCE ON CLIMATE RELATED FINANCIAL DISCLOSURES

“We’ll always have Paris.” On The Global Commission on the Economy and
Climate estimates that the world is expected to
the same day that the Paris invest roughly US$90 trillion in infrastructure over
Agreement went into force, the next 15 years,2 a major boost from current
delegates attending a warm-up levels. Most countries have chronic infrastructure
deficits. In the case of Latin America and the
event in Casablanca, Morocco, Caribbean, the Inter-American Development Bank
before last year’s UN climate estimates that up to 5% of the region’s GDP, or
talks in Marrakesh, might roughly US$250 billion per year, will be required
to meet future demand for infrastructure.3
have uttered that iconic line
from the film Casablanca.
The world is expected to invest
Yet, despite the location and timing being a perfect US$90 trillion in infrastructure
match, the Casablanca reference is off-key. As the
film depicts, the protagonists may have found love over the next 15 years, far above
in Paris, but their predicament dictated they must
separate. In the case of the Paris Agreement—and its current levels.
alignment with the finance necessary to implement
it—this is not the end, but the start of what could be a
In part, this deficit reflects existing barriers facing
beautiful friendship.
private sector financing of sustainable infrastructure.
These include a failure on the part of governments
The Paris Agreement has the objective of making to develop transparent pipelines, which has led to
finance flows consistent with a pathway toward a poor estimation of infrastructure needs. Investors
low emission and climate-resilient development. may also be deterred by high development and
As countries look to boost growth while transactions costs.
implementing the Sustainable Development Goals
and their Paris commitments, shifting finance
Fortunately, a large number of initiatives focused on
flows to sustainable infrastructure is critical.1
closing the infrastructure funding gap are emerging.

This requires major investment in clean public

transport, smart efficient energy systems and
buildings, and the effective use of natural capital
such as forests. Studies show that such investments
could increase upfront capital costs by approximately
5%, but sustainable infrastructure should generate
lower operating costs over the life of the investment,
while also reducing risks and negative externalities,
including pollution.

Marsh • 27
Environmental Impacts

The initiatives generally fall into three categories. The Paris Agreement is lauded as helping to
One set are “influencers,” which focus on thought provide a long-term signal to investors to allocate
leadership and attempts to affect policy change. capital that is consistent with low-carbon and
There are also “mobilizers,” which work to develop resilient development. This signal can only
“bankable” projects or convene investors to facilitate illuminate the path forward; these initiatives must
capital flows. Lastly, “tool providers” attempt to achieve far greater coherence and coordination
enable integrated environmental or social analysis between them to ensure that they and the
of infrastructure projects into the investment and Paris Agreement are mutually reinforcing.
monitoring process.

All of these industry initiatives have the potential

to play significant roles in promoting investment in
sustainable infrastructure; however, in some cases,
they appear to be working against each other.

The Paris Agreement is lauded as helping to provide a long-

term signal to investors to allocate capital that is consistent
with low-carbon and resilient development.

28 • Emerging Risks in Construction

 Environmental Impacts

FOUR STEPS
To achieve this, we propose the following steps.
First, industry initiatives need to clarify the principles
Industry initiatives need to clarify
and develop shared definitions for sustainable
infrastructure investment. This can provide greater
the principles and develop shared
certainty and urgency across the industry and
create a more compelling alternative to traditional
definitions for sustainable
infrastructure such as coal-fired power stations,
while also enabling comparability for investors.
infrastructure investment.
Second, those infrastructure initiatives that
do not consider sustainable infrastructure
should change tack and commit to sustainable
infrastructure principles through a review
of their mission and objectives.

Third, to optimize joint impact, it will be necessary to

convene the conveners and work together towards a
shared “grand plan” that sets out an effective division
of labor and the sharing of ideas between initiatives.

Fourth, collaboration should be encouraged between

initiatives sharing common missions so that,
collectively, they can work to scale-up investment.

These steps will be essential to provide investors

with the right signals and tools required to
align their investment strategies with the Paris
Agreement and Sustainable Development Goals.

Time is rapidly evaporating. With 70% of the

forecast increase in emissions from developing
countries likely to come from infrastructure that is
still to be built,4 decisions taken now will determine
whether staying well below two degrees Celsius is
viable. The time to begin that beautiful friendship
among sustainable infrastructure initiatives is
now. Our future could very well depend on it.

THIS ARTICLE FIRST APPEARED ON BRINK.

Marsh • 29
30 • Emerging Risks In Shipping
 Environmental Impacts

DRAMATIC DROP IN
GLOBAL COAL PLANT
CONSTRUCTION
AUTHOR: BRINK EDITORIAL STAFF

In March, US President Donald Trump signed an executive order aimed in

part at shoring up the crippled coal industry.1 The move stands in stark
contrast to a new report showing a steep decline in the global number of
coal-fired power plants that are planned or have started construction.2

Trump’s efforts might be too little, too late, as the On the global coal front, from January 2016 to January
fate of the coal industry has been in steady decline 2017, there was a 48% drop in planned coal plants and a
for decades. Even Robert Murray, head of the largest 62% drop in construction starts, the report said.
private US coal operation, Murray Energy, told Trump
earlier this year he should “temper his expectations” The global slowdown in coal plant construction
on the promise to bring back coal jobs.3 Coal’s fate in is highlighted in the report as keeping global
the US was seemingly sealed last year when natural gas warming under the two-degree Celsius target
exceeded coal-fired power for the first time on an annual set at the Paris Climate Summit. The slowdown
basis, owing to “mainly a market-driven response to appears “to have brought global climate goals
lower natural gas prices,” according to the US Energy within feasible reach, raising the prospect that the
Information Administration.4 Overall, the US energy worst levels of climate change might be avoided”
profile is in transition and the impact of the recent policy the report said. “More progress is needed and
decision on the country’s energy performance and the margin for error is tight, but the results of the
energy security will play out over time. Currently, the past year provide good reason for optimism.”
US ranks fourth overall in terms of energy security in the
global rankings on the Energy Trilemma Index.5

Figure 1: Change in the Global Coal Pipeline (Megawatts)

Source: endcoal.org

ACTION JAN 2016 JAN 2017 CHANGE %

Started Construction (past 12 months) 169,704 65,041 -62
Retired (past 12 months) 36,667 27,041 -26
Pre-permit 434,180 222,055 -49
Permitted 168,230 99,367 -41
Operating 1,914,579 1,964,460 3
In Construction 338,458 272,940 -19
Completed (past 12 months) 108,029 76,922 -29
Announced 487,261 247,909 -49

Note: Includes coal-fired generating units 30 megawatt (MW) and larger. According to Platts WEPP database there are
about 27,060 MW of units smaller than 30 MW.

The global coal slowdown began in 2013. "[T]he dramatic shrinkage in the coal power pipeline … shows that power
capacity trends are moving into alignment with declining power generation and that climate goals are indeed within
reach without massive asset stranding,” the report said.

Marsh • 31
Environmental Impacts

Figure 2: Proposed Coal Plants by Region, january 2017 (MW)

Source: endcoal.org

REGION PRE-CONSTRCTION CONSTRUCTION ON HOLD OPERATING

Africa and Middle East 49,842 12,838 8,595 50,529
Australia/NZ 1,350 0 1,316 26,972
Canada/US 1,295 582 1,000 296,300
East Asia 167,083 161,146 451,059 1,020,335
EU28 9,360 7,468 7,050 160,722
Eurasia 9,156 980 2,200 61,914
Latin America 6,372 2,175 3,541 17,909
Non-EU Europe 75,626 2,640 19,874 49,929
SE Asia 93,499 31,808 20,992 65,948
South Asia 156,018 53,303 91,740 212,902
Total 569,601 272,940 607,367 1,964,460

On the global coal front, from January 2016 to January

2017, there was a 48% drop in planned coal plants
and a 62% drop in construction starts.

32 • Emerging Risks in Construction

 Environmental Impacts

CHINA AND INDIA LEAD THE WAY An end to the coal plant
Policy action in China was the main contributor
to the shrinking coal plant pipeline, owing to construction boom brings the
“the imposition of unprecedented and far-
reaching restrictive measures by China’s central possibility of a global phase-out of
government,” the report said. Coal consumption
in China declined by 4.7% last year, according coal over the coming decades.
to the National Bureau of Statistics.6

China’s move away from coal has been replaced From 2006 through 2016, China and India
with a push for renewable energy sources, accounted for 86% of all coal power built. “An
including solar and wind, as much as a way to end to the coal plant construction boom brings
combat debilitating air pollution in its urban areas the possibility of a global phase-out of coal
as to combat the effects of climate change. over the coming decades, a prerequisite to
reining in climate change,” the report said.
In tandem with the moves by China, India is
also experiencing a slowdown in coal plant Retirement of older coal plants also factors into
development, the report noted, “driven the climate goals equation. Coal plant retirements
primarily by the reluctance of banks and have steadily grown over the past 10 years, the
other financiers to provide further funds.” report said. For any phase-out plan for coal plants
to be effective, the report said it’s crucial that
India is in the midst of its own campaign on construction currently on hold in China and India
renewables; the Government plans to install remain that way, coal power implementation rates
215 gigawatts of renewable power by 2027. worldwide continue to decline, and Organisation
“The combination of excessive coal power for Economic Co-operation and Development
capacity and declining cost of renewables has (OECD) countries “move aggressively” to install
caused many financial backers of coal projects clean energy sources in place of aging coal plants.
to withdraw support,” the report said.
THIS ARTICLE FIRST APPEARED ON BRINK.
India could phase out coal power completely by
2050 if the cost of renewables continues to fall at
its current rate,7 which would put it significantly
ahead of its Paris Agreement climate commitments.

Marsh • 33
34 • Emerging Risks In Shipping
 Environmental Impacts

IN THE US, RENEWABLE

ENERGY SURPASSES
NUCLEAR GENERATION
…FOR NOW
AUTHOR: BRINK EDITORIAL STAFF

Record electric generation from Renewables lead over nuclear in the energy generation
race will likely be short-lived, as official EIA projections
wind, solar, and hydroelectric estimate that “monthly nuclear electricity generation
power in March and April combined will surpass renewables again during the summer
to exceed that provided by nuclear months of 2017 and that nuclear will generate more
electricity than renewables for all of 2017.” 2
sources in the US for the first time
in 32 years, according to the Energy In addition, nuclear power is a critical component of
Information Administration (EIA).1 a low-carbon infrastructure in the fight against rising
temperatures and climate change. “[N]uclear power
is a low-carbon technology, with overall emissions
The record was the result of a rain-soaked of the same magnitude as wind or hydro electricity,”
winter environment across much of the West the Organisation for Economic Co-operation and
Coast that has wiped out the region’s prolonged Development (OECD) said in a report on nuclear’s
drought and “contributed to the overall rise in global place in the low-carbon equation to fight
renewable energy generation this spring, while climate change.3 While acknowledging there are a
nuclear generation in April was at its lowest host of hurdles in front of nuclear power—from societal
monthly level since April 2014,” the EIA said. acceptance to financing to public policy—“in most
cases, constraining the evolution of an energy system
However, this may not signal a long-term decrease in by limiting carbon levels in the most cost-effective
nuclear power generation. The results, the EIA said, way leads to a high share of nuclear energy,” the OECD
reflect “both seasonal and trend growth in renewable report said.
generation, as well as maintenance and refueling
schedules for nuclear plants, which tend to undergo
maintenance during spring and fall months, when Renewables lead over nuclear in
overall electricity demand is lower than in summer
or winter.” the energy generation race will
likely be short-lived.

Marsh • 35
Environmental Impacts

HYDRO LEADS THE WAY

Thanks to a record wet winter in the West, Wind and solar energy increases stem from
hydroelectric power—which remains the largest more capacity coming online. “More than
source of renewable electricity in most months 60% of all utility-scale electricity, generating
and was at its highest level in nearly six years capacity that came online in 2016, was from
this March—generated 30 billion kilowatt wind and solar technologies,” the EIA said.5
hours. The EIA projects a 14% increase in
hydropower this year compared to 2016.4

FIGURE 1: Monthly Electricity Generation from Selected Fuels (Jan 2012-Apr 2017)
Source: EIA

80

70
NUCLEAR
SOLAR
60

50
WIND
% 40
BIOMASS
30 GEOTHERMAL

20
HYDRO
10

0
2012 2013 2014 2015 2016 2017

Monthly nuclear electricity generation will surpass

renewables again during the summer months of
2017, and nuclear will generate more electricity
than renewables for all of 2017.

36 • Emerging Risks in Construction

 Environmental Impacts

Between March 2016 and March 2017, wind

power increased 16% and solar generation
"Retirements of a
saw a huge leap of 65%. Wind power will see a
modest increase of 8% in utility-scale generation
number of nuclear
for 2017, the EIA said, while solar will continue
its upward trend, recording a 40% increase.
plants have resulted in a
While renewable generation is increasing, nuclear
slightly lower level of
power output has remained flat since the 1990s,
the EIA said. “Retirements of a number of nuclear
overall nuclear
plants have resulted in a slightly lower level of overall
nuclear generation capacity, and in turn, a lower level
generation capacity, and
of generation,” the EIA said.6
in turn, a lower level of
While fluctuations in renewable power generation
follow seasonal patterns, such fluctuations in nuclear
generation."
power reflect scheduled maintenance times, EIA EIA
said. Accordingly, an average of 14 gigawatts and 21
gigawatts of nuclear generation went offline in March
and April, respectively, representing about 14% and
21% of total US nuclear capacity, the EIA said. THIS ARTICLE FIRST APPEARED ON BRINK.

Marsh • 37
Economic Impacts

ECONOMIC
IMPACTS

38 • Emerging Risks in Construction

Economic Impacts

Marsh • 39
Insurance Impacts

40 • Emerging Risks In Shipping

 Economic Impacts

PREPARING BANKABLE
INFRASTRUCTURE
PROJECTS
AUTHOR: FIDA RANA, SENIOR CONSULTANT, WORLD BANK AND PRINCIPAL POLICY ADVISOR AT
INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT

The issue of bankability of infrastructure projects has long been the topic
of discussion by the development and investor community, and is one of
the key problems of the global infrastructure gap.

Under German presidency, the B20 has submitted 20 Infrastructure projects entail risks, in various forms
recommendations to G20 leaders under the theme and shapes: preparation, bidding, construction,
“Building Resilience—Improving Sustainability— and development phases. Commercial lenders,
Assuming Responsibility.”1 Recommendation 14 is like other risk capital providers, are concerned
on boosting infrastructure finance and reads, “G20 about the risk profiles of the project and as such
members should boost infrastructure finance by the riskiness of their investment decisions. Unless
developing and promoting bankable and investment- this group of investors, who typically provide up
ready infrastructure project pipelines and by to 80% of a project’s financing needs, is satisfied
enhancing the role of Multilateral Development Banks with the risk profile of the project, they will not
as catalysts for private sector investment.” invest. Alternatively, they would ask for various
risk mitigations or credit enhancements that
The B20 task force on infrastructure confirms that would only raise the total cost of the projects.
“the investment gap in infrastructure is not the result
of a shortage of capital. Real long-term interest rates
are low, there is ample supply of long-term finance,
The investment gap in
interest by the private sector is high, and the benefits
are obvious.” However, a number of factors hold back
infrastructure is not the result
investment in terms of financing and funding. “The
main challenge is to find bankable and investment-
of a shortage of capital.
ready projects.”2
The fate of the bankability of an infrastructure project
Unfortunately, there seems to be a lack of is set at a much earlier phase of project life—at the
understanding of what factors constitute—and more project development stage.
importantly, which parties contribute the most to—
making infrastructure projects bankable. Somewhat When the concerned ministry (or responsible agency)
misleading, perhaps by the semantics of the term starts preparing a project to roll out into the market
“bank,” the issue of bankability tends to be associated with an aim to attract private capital, it has to, among
with bankers. The argument, “Just let the bankers many other aspects, decide on the key risk-sharing
discuss and deal with the bankability aspect of the protocol of the project. Which risks will be shared by
project,” is a misconception at best. whom during different phases of the project, such as
pre-construction, construction, and operation?
It is important to note that commercial bankers and
other commercial infrastructure debt providers do
not make a project bankable. Rather, their task is to
assess the bankability of an infrastructure project
and, if found acceptable, provide the risk capital in
the form of debt financing. If not, they will move on in
search of other projects.

Marsh • 41
Economic Impacts

As mentioned earlier, infrastructure finance entails

long-term engagement from banks, and the tenor
can extend as long as 15 to 20 years. Understandably,
banks want to make sure that they do not get
involved in a project that lacks a comfortable risk-
sharing protocol.

Designing an optimal risk-sharing protocol at the

project development phase is at the crux of ensuring
bankability. If the risks are not allocated to the right
parties during a project’s conceptualization phase,
the ultimate consequence is the inability to find
investors and lenders. And going back to the drawing
board for public/private partnership contract
redesigning is a costly exercise.

This brings up an interesting question: If bankers

appear at a later stage of the project cycle, how
can we ensure the bankability of a project in the
development phase? Those who are developing
the project at ministry or agency levels are not
necessarily banking experts. As such, there is
a crucial need to get bankers’ and experienced
advisors’ feedback on board as a project is being
developed. Two approaches, complementary
to each other, can play important role:

Designing an optimal
risk-sharing protocol at •• Project Preparation Facility (PPF): PPFs are used

the project development as a means of developing bankable, investment-

ready projects. Under PPF, both technical and/

phase is at the crux of or financial supports are provided to project

owners/concessionaires, and such supports

ensuring bankability. can cover a wide range of activities, such as

undertaking project feasibility studies, including
value for money analysis, developing procurement
documents and project concessional agreements,
undertaking social and environmental studies,
and creating awareness among the stakeholders.
PPFs can also provide financial assistance to local
governments or special public sector agencies to
support the financial, legal, and technical advisory
services required to facilitate private investment
into infrastructure projects.

42 • Emerging Risks in Construction

 Economic Impacts

•• Market Sounding: Through market sounding •• What are the other key credit considerations such
exercises, important feedback from the lender as collateral, off-taker credit quality, supplier credit
community can feed into the project preparation quality, etc.?
phase and shape the risk allocation matrix in a
market-acceptable manner. The lending market •• What could be the approximate maximum facility
and the appetite of lenders can vary over time, and tenor for a project of this nature?
due to a host of factors. These include legal and
•• What kinds of risks should the Government cover
regulatory matters, global interest rate regime,
for this project?
capital market conditions, etc. As such, taking
lenders’ feedback on board can be very useful to •• What kind of minimum government support or
make the project bankable. other credit enhancements are needed for the
There are specialized organizations that can conduct bank to fund this project?
market sounding through their network of banks that
are active in funding infrastructure public-private An infrastructure project that has risk-
partnership (PPP) projects. A typical market-sounding sharing protocol based on broad-level early
questionnaire would ask a bank questions such as: feedback from the lending community will
likely be able to raise the required funding
•• Does the bank have an appetite to lend to
with less complication than without it.
the particular country? Can the bank lend on
an uncovered basis or does it need an
insurance cover? THIS ARTICLE FIRST APPEARED ON BRINK.

•• In case of an insurance cover, what kind of

insurance instruments would the bank need to
enhance the project’s credit profile? It could be
any or a combination of partial risk guarantee
(PRG), political risk insurance (PRI), performance
guarantees, etc.

Marsh • 43
Insurance Impacts

44 • Emerging Risks In Shipping

 Economic Impacts

ASIA NEEDS US$26

TRILLION IN
INFRASTRUCTURE
INVESTMENT FROM
2016-2030
AUTHOR: BRINK ASIA EDITORIAL STAFF

Developing Asia needs to invest a The region’s baseline requirements—without

considering costs related to climate change
whopping US$26 trillion between mitigation and adaptation—stand at US$22.6 trillion,
2016 and 2030—US$1.7 trillion or US$1.5 trillion per year (5.1% of projected GDP).
per year or 5.9% of projected
The region’s failure to make the necessary
GDP—to meet its infrastructure investments in infrastructure will greatly constrain
requirements, according to its ability to maintain economic growth momentum,
Meeting Asia’s Infrastructure eradicate poverty, and tackle climate change.
Needs, a new report by the Asian
Development Bank (ADB).1
Figure 1: Estimated Infrastructure Investment Needs by Region, 45 developing member countries
(DMCs), 2016-2030
Source: 2015 Revision of World Population Prospects, United Nations; ADB estimates

(US$ billion in 2015 prices) (Investment needs as % of GDP)

EAST 13,781 2,281 16,062 5.2

ASIA

SOUTH 5,477 870 6,347 8.8

ASIA

SOUTHEAST 5.7
ASIA 2,753 388 1,347

CENTRAL 492
555 7.8
ASIA 73

THE 42
46 9.1
PACIFIC 4

BASELINE ESTIMATES CLIMATE ADJUSTED ESTIMATES

The new estimates from the ADB are more than double the US$750 billion it estimated in 2009.* The inclusion of
climate-related factors has contributed majorly toward the increase. The forecast for continued rapid economic
growth, however, is a more important reason.

* The inclusion of all 45 ADB member countries in developing Asia, compared to 32 in the 2009 report, and the use of 2015
prices versus 2008 prices, also explain the increase.

Marsh • 45
Economic Impacts

VARYING REQUIREMENTS
Of the various subregions, East Asia is expected to
account for 61% of all climate-related investments
between now and 2030. As a percentage of GDP,
however, investments need to be highest in the
Pacific region (9.1%), followed by South Asia (8.8%).

Figure 2: Estimated Infrastructure

Investment Needs by Region, 45 DMCs, 2016-
2030 – Climate-adjusted Estimates
% Share of Total (US$ billion in 2015 prices)
Source: ADB estimates

3.1%
8.7% (802)
(2,279)

31.9% 56.3%
(8,353) (14,731)

In terms of funding requirements by sector, energy

and transport alone account for almost 90% of
developing Asia’s climate-adjusted infrastructure
investment requirements from now until 2030.
While US$14.7 trillion needs to be invested
POWER
in electricity infrastructure, another US$8.4
WATER AND SANITATION trillion is required for transport infrastructure,
TELECOMMUNICATIONS US$2.3 trillion in telecommunications, and
US$800 billion in water and sanitation.
TRANSPORT

HUGE FUNDING GAP

East Asia is expected to Developing Asia currently invests about US$881
billion per annum in infrastructure (for 25 economies

account for 61% of all climate- with adequate data, comprising 96% of the region’s
population), but the infrastructure investment gap

related investments between stands at 2.4% of projected GDP for 2016-2020 when
climate-related adjustments are accounted for.

now and 2030. In fact, when China is excluded, the gap rises to
5% of GDP. According to ADB, strong fiscal reforms
could lead to the generation of additional revenues
equivalent to 2% of GDP, bridging about 40% of the
funding gap. Even if that happens, the private sector
will still need to cover the remaining 60% shortfall,
and to do so, it will need to increase its annual
investments in infrastructure from US$63 billion
today to US$250 billion over 2016-2020.

46 • Emerging Risks in Construction

 Economic Impacts

Figure 3: Meeting the Investment Gaps: Selected ADB Developing Member Countries, *2016-2020
(annual averages, US$bn 2015 prices)
Source: ADB(2016a); Country sources; Investment and Capital Stock Dataset, 1960-2015, IMF; Private Participation in Infrastructure
Database, World Bank; World Bank (2015a and 2015b); World Development Indicators, World Bank; ADB estimates

A. Baseline Estimates B. Climate-adjusted Estimates

600 600
(US$BN IN 2015 PRICES)

(US$BN IN 2015 PRICES)

500 500
$187
INVESTMENTS

INVESTMENTS
400 $141 400
(2.3%) (3.0%)

300 $121 300 $121 $503

(2.0%) $457 (2.0%) (8.2%)
200 (7.5%) 200
$63 $63
100 100
$133 $133
0 0
CURRENT CURRENT FUTURE FUTURE FUTURE CURRENT CURRENT FUTURE FUTURE FUTURE
PUBLIC PRIVATE PUBLIC PRIVATE INVESTMENT PUBLIC PRIVATE PUBLIC PRIVATE INVESTMENT
NEED NEED
*Countries include the 25 DMCs minus the People’s Republic of China; future public investments are based on the 50% fiscal space assumption.
Number in brackets indicate investments as a percentage of GDP.
Note: Numbers may not add up due to rounding.

HOW CAN THE GAP However, doing so will require regulatory

and institutional reforms so that investing
While Asia’s infrastructure has improved
significantly in the past decade—
BE FUNDED? in infrastructure becomes more attractive especially in areas such as electricity
There are various measures that can to private investors. Additionally, a generation, transportation, and telecom
be taken to narrow the infrastructure pipeline of bankable projects needs to and water infrastructure—and this has
funding gap in developing Asia, be developed, including public-private resulted in strong economic growth and
according to the report. partnerships (PPPs). Going forward, Asian a reduction in poverty, the reality is that
governments need to implement PPP- an ample amount still needs to be done.
related reforms including streamlining More than 400 million Asians still lack
Governments can boost public
PPP procurement and bidding processes, electricity, about 300 million don’t have
investment in infrastructure by collecting
providing legal recourse to investors, access to safe drinking water, and 1.5
more revenues through improving tax
and establishing standalone government billion lack basic sanitation facilities. In
administration, borrowing prudently, and
units focused on PPPs, among others. several cases where this infrastructure
refocusing spending by cutting energy
Finally, a deepening of capital markets exists, it is of poor quality.
subsidies, for example.
is also required so that the region’s
substantial savings can be used to fund As such, Asian governments have much
Regional governments need to adopt infrastructure investment. to do to improving their infrastructure if
innovative approaches to bolster
they want to continue reducing poverty
infrastructure financing, such as “land
and improving the lives of their people.
value capture” to finance infrastructure,
or capital recycling, which refers to the
AN URGENT NEED
selling of brownfield assets, auctioning FOR ACTION THIS ARTICLE FIRST APPEARED ON
concessions, and allocating proceeds to BRINK ASIA.
“The infrastructure financing gap can’t
finance greenfield infrastructure. be fixed by any one party,” said Blair
Chalmers, a director for the Marsh &
Separately, the private sector McLennan Companies’ Singapore-
should be encouraged to play a based Asia-Pacific Risk Center, which
greater role in funding infrastructure is currently working on infrastructure
development, particularly in sectors bankability issues. “There is a deeply
such as telecommunications and power connected ecosystem of stakeholders
generation. Reforms in public finance that must take action, individually and
are expected to make up for a little less in partnership, to achieve meaningful
than half of the infrastructure gap, which progress on a topic that is of regional
means private investment has to increase importance,” Chalmers said.
“dramatically,” according to the report.

Marsh • 47
Insurance Impacts

48 • Emerging Risks In Shipping

 Economic Impacts

ROAD TO ECONOMIC
GROWTH PAVED
WITH EFFICIENT
INFRASTRUCTURE
INVESTMENT
AUTHOR: TREVOR D’OLIER-LEES, SENIOR DIRECTOR, INFRASTRUCTURE PRACTICE
AT S&P GLOBAL RATINGS SERVICES, AND MAR BELTRAN, SENIOR DIRECTOR,
INFRASTRUCTURE PRACTICE AT S&P GLOBAL RATINGS SERVICES

Investment in infrastructure is in aggregate demand spurred by the increase in

disposable income.1 This does not include potential
vital: Without its upkeep and productivity gains in the medium to long term from
development, the costs to trade well-thought-through projects. It’s been done before:
and economic competitiveness Eisenhower’s great interstate highway buildout in the
1950s boosted US GDP by a factor of six.
will only mount.

Working together to help channel efficient CONSEQUENCES OF

investment to infrastructure, governments and INACTION
private investors alike will need to ensure that
Without adequate investment in infrastructure,
the risks are identified, managed, and, where
productivity could be limited and economic
appropriate, mitigated.
growth constrained. Modernizing the US energy
grid will require an extra US$177 billion worth of
investment—until the funds are found, antiquated
INFRASTRUCTURE’S power transmission and distribution infrastructure
ECONOMIC BENEFITS could waste around US$25 billion each year. Another
US$160 billion is lost from vehicles sitting in traffic;
Infrastructure investment is closely linked to
the potential unpaid bill for maintenance of road
economic output. In the short term, it stimulates
networks is currently estimated at US$1.1 trillion.
demand, creating employment in construction
and related industries, such as manufacturing
and materials. In the long term, it boosts supply,
enhancing an economy’s productive capacity.
In the US, an additional 1% of real
For example, a new road may facilitate more
trade, and it would likely support even more
GDP spent on infrastructure could
jobs long after the project’s completion. boost the economy by a factor of
This is known as the “multiplier effect,” whereby about 1.2.
each dollar spent on infrastructure translates into
greater gains for GDP. In the US, according to S&P
According to the American Society of Civil Engineers
Global, an additional 1% of real GDP spent on
(ASCE), if measures aren’t taken to fund and repair
infrastructure could boost the economy by a factor
the country’s aging infrastructure, business could
of about 1.2. This multiplier is based on an economic
miss out on US$7 trillion in sales by 2020, with
analysis conducted by S&P Global economists and
around US$3.9 trillion lost to GDP. This translates
accounts for both the direct impact of infrastructure
into a yearly loss of US$3,400 to households and 2.5
investment in wages paid to employees hired to build
million fewer US jobs (see Figure 1).2
and maintain assets, as well as the indirect increase

Marsh • 49
Economic Impacts

Figure 1: The US Infrastructure Need in Figures

Source: S&P Global Ratings

56,007 DEFICIENT US$90 BILLION US$62 BILLION BACKLOG US$160 BILLION LOST
structurally deficient bridges needed for public transit construction projects by US sitting in traffic each year
Army Corps of Engineers

240,000 BROKEN 900 BILLION DISCHARGED US$25 MILLION WASTED US$232 OVERPAID
water main breaks gallons of untreated sewage by antiquated power per household annually for
transmission and delayed goods
distribution per year

PAYING THE PRICE OF INACTION BY 2020

$ $ $
US$7 TRILLION US$3.9 TRILLION US$3,400 PER YEAR 2.5 MILLION
lost in business sales lost in gross domestic lost by households fewer jobs in US
product

81% FUNDED 73% FUNDED 59% FUNDED 46% FUNDED 30% FUNDED
US$757 billion funded US$155 billion funded US$22 billion funded US$941 billion funded US$45 billion funded
US$177 billion US$42 billion US$15 billion US$1.1 trillion US$105 billion
unfunded unfunded unfunded unfunded unfunded

Governments’ ability to fund With Europe´s economic outlook looking more

balanced geographically and across sectors, and

infrastructure projects using their with more countries posting stronger growth
numbers, the spread between the fast- and slow-

own balance sheets without growing economies in the eurozone is set to narrow
in the coming months. Governments’ ability to fund

compromising long-term fiscal infrastructure projects using their own balance sheets
without compromising long-term fiscal sustainability

sustainability is set to increase. is set to increase. To help, in late 2014 the European
Union launched the European Fund for Strategic
Investment. This is the main execution vehicle of
the Investment Plan for Europe.3 The European
Parliament is in final negotiations to increase its
capacity from an initial €21 billion to €33.5 billion.

50 • Emerging Risks in Construction

 Economic Impacts

TRADITIONAL TAPPING OF PRIVATE CAPITAL

One might also look to the capital markets to lessor, licensor, and safety and reliability regulator.
foot the mounting infrastructure bill: Globally, Endeavour Energy will continue to be regulated by
institutional investors such as pension funds the Australian Energy Regulator, which determines
and insurers command about US$90 trillion, network prices.
yet they have less than 1% of their resources
invested in infrastructure. If incentivized, investors An alternative approach being increasingly
could bring much-needed capital to the sector considered globally is “asset recycling,” in which
through debt-financing projects—without a greenfield project—such as a new highway—is
increasing governments’ debt-to-GDP ratios. divided into stages of development. The higher
credit risk of earlier stages—in this case, the
Partial privatization has traditionally brought this highway’s construction and ramp-up risk—is
private capital to bear: A state-owned enterprise— transferred to the private sector. The New South
perhaps an electricity transmission and distribution Wales Government also announced in May the sale
network—is sold under a long-term lease, overseen of a majority stake in the M4-M5 Link, a critical road
by an independent regulator. In May 2017, the New connecting two of Sydney’s busiest highways.5
South Wales Government in Australia sold a 50.4% Along with an initial investment from the state
stake of electricity distributor Endeavour Energy and commonwealth governments, private-sector
to a consortium of institutional, superannuation, debt supported by toll revenue has financed the
and sovereign wealth funds—freeing up A$7.624 road’s development. Effectively, the state has
billion (US$5.61 billion) for schools, hospitals, roads been able to “recycle” its equity investment to
and rail networks.4 The state Government retains a help fund the final stage. As Figure 2 shows, New
49.6% interest in Endeavour Energy and will have South Wales is the leading investor in infrastructure
ongoing influence over operations as a joint investor, among Australian states and territories.

Figure 2: Planned Gross Capital Investment in Australian Infrastructure, 2017-2021

Source: New South Wales Government

NEW SOUTH WALES 73

VICTORIA 40
QUEENSLAND 40
WESTERN AUSTRALIA 18
SOUTHERN AUSTRALIA 10
AUSTRALIAN CAPITAL
TERRITORY 4
NORTHERN TERRITORY 4
TASMANIA 4
0 10 20 30 40 50 60 70
A$BILLION

Marsh • 51
Economic Impacts

FURTHER TOOLS TO FINANCE INFRASTRUCTURE

Another means of facilitating collaboration between and penalties are put in place under contract to
government and private capital is the public-private incentivize the private sector to deliver a well-built
partnership (PPP), a procurement model where a and well-maintained asset on time and on budget.
private sector partner—normally under a long-term
fixed-price contract—takes responsibility for some The private sector provides the financing in PPPs,
combination of designing, building, financing, which acts as a key incentive for optimal performance
maintaining, or operating a public infrastructure over the long term.
asset. Through a PPP, the government entity retains
ownership of the assets.
PPPs are widely used, for projects ranging from
ports, airports, and high-speed railways to schools,
We’ve observed that PPPs can put private capital hospitals, and civic buildings (see Figure 3). They also
to work developing, building, repairing, and have an established track record. In Canada alone,
maintaining the public’s significant infrastructure the model has been used for about 250 projects that
needs. They also allow for risks to be allocated together are worth more than US$122 billion; those
to various parties based on their capacity and that have reached financial close have saved the
willingness to manage them. A set of bonuses Government an estimated US$27 billion.

Figure 3: Selected Public-private Partnership Projects Rated by S&P Global Ratings

Source: S&P Global Ratings

SOCIAL INFRASTRUCTURE RAIL AND MASS TRANSIT AIRPORTS/PORTS ROADS AND BRIDGES
RATED EXAMPLES
Ancora (RCH) Pty Ltd. Line Transit Partners LLC Arctic Infrastructure Limited Elizabeth River Crossings
(Hospital Australia). (Light rail transit, US). Partnership (Airport, Opco LLC (Bridge and
Canada). tunnel, US).
InspirED Education (South High Speed 1 PLC Lima Airport Partners SRL ITR Concession Company
Lanarkshire) PLC (School, (Rail, UK) (Airport, Peru). LLC (Toll Road, US).
UK)
Properties LTAP LP (Civic Reliance Rail Finance Pty. ACI Airport Sudamerica 95 Express Lanes LLC
building, Canada). (Rail, Australia). S.A./Cerealsur S.A. (Aiport, (Managed lance, US).
Uruguay).
Terminales Portuarios
Euroandinos Paita SA (Port,
Peru).

52 • Emerging Risks in Construction

 Economic Impacts

Investors, of course, need economies of scale A second risk to factor in is poor project preparation.
for cost-efficient financing of construction and We have observed that, ideally, it is best practice for
operations to attract capital to smaller assets. We’ve potential projects to be carefully evaluated, planned,
seen separate ventures “bundled” into one larger and designed. Before committing capital, investors
infrastructure entity—whether through acquisitions rely on favorable conditions and transparent insights
of smaller utility systems by larger companies, the into creditworthiness. Continued growth of the
securitization of municipal assets, or the bundling offshore wind sector, for example, relies on projects
of loans in state revolving funds. In North America, being able to overcome engineering, technological,
courthouse, highway, school, and bridge assets have geographical, and regulatory limitations.
been bundled in this way. In Spain last year, we saw
the Vela Energy project company issue €404.4 million
worth of bonds to refinance the construction debt for Efficient infrastructure markets
a bundle of 42 solar parks nationwide.6
generally depend on
A sector that could especially benefit from bundling
is North America’s water system.7 The American governments outlining both clear
Water Works Association estimates the cost of
modernizing the continent’s pipe and sewer facilities infrastructure needs and a long-
at US$1 trillion over the next 20 years. Of the 52,000
community water systems in the US, more than half term pipeline of projects.
are characterized as “small” by the Environmental
Protection Agency and may struggle to find the funds
on their own. Projects can face a multitude of risks: unproven
technology or design, operational underperformance,
exposure to adverse demand or commodity
RISKS AND CHALLENGES price movements in the markets, financially
insecure counterparties, or unfavorable regulatory
Infrastructure development is not without its risks. environments. In the absence of appropriate
First, infrastructure investment cannot risk being mitigants, all these risks could invite the chance of
fiscally unsustainable. Governments must develop default. At S&P Global Ratings, we’ve noted that in
assets at the lowest possible costs of capital (not over two decades of rating project finance debt about
just in the short term, but also across the long 6.5% of projects default, with market risk having been
term, throughout the useful life of the asset), with the most common reason, followed by technical risk.
funds allocated to those projects with the highest At the same time, the median recovery rate has been
ratio of benefits to costs. Otherwise, higher levels around 89%.9
of spending may simply lead to larger budget
deficits. This is a particular concern for developing
On a broader scale, meanwhile, efficient
economies where, if the tax base is limited or tax
infrastructure markets generally depend on
enforcement is weak, even those public investments
governments outlining both clear infrastructure
that could significantly boost economic growth
needs and a long-term pipeline of projects. Just look
may not reduce budgetary pressures. Yet the most
at Spain, where the fragmentation of responsibilities
advanced economies may still have little fiscal room
for infrastructure planning across different levels of
for maneuver if—like the UK, for instance—they are
government has, in some cases, resulted in resources
already constrained by high debt-to-GDP ratios.
being invested in unfinished or unused projects, such
as the construction or upgrade of barely used airports
We have observed that a way that governments at Castellón, Ciudad Real, Huesca, and Lleida before
generally transfer the payment obligation is to the financial crisis.10
follow the principle that users pay for infrastructure
services whenever feasible. Colombia, for example—
Developing the world’s infrastructure presents as
where inadequate transportation infrastructure
many challenges as opportunities. With the risks
has impeded economic performance—is currently
identified, managed, and appropriately mitigated, the
relying on concessionaires to develop and operate
public and private sectors could collaborate to reap
7,000 kilometers of new toll roads.8 Regional and
the benefits of efficient investment.
international institutional investors have provided
financing based on their view that projected traffic
volumes will underpin revenues. THIS ARTICLE FIRST APPEARED ON BRINK.

Marsh • 53
Insurance Impacts

54 • Emerging Risks In Shipping

 Economic Impacts

COMMERCIAL
INSURANCE RATES
CONTINUE DECLINE IN
LIGHT OF GLOBAL
MARKET FORCES
AUTHOR: CLAUDE D. YODER, HEAD OF GLOBAL ANALYTICS AT MARSH

The halfway point in the 2017 fiscal year marked the

seventeenth consecutive quarter in which global
commercial insurance pricing declined, on average,
according to the Marsh Global Insurance Market Index.

It was also the sixth straight quarter in which the rate

of pricing decline moderated, according to the index,
CAPACITY AND
which is a proprietary benchmark of commercial CATASTROPHES
insurance premium rate change at renewal, Along with the amount of capacity and attendant
representing the world’s major insurance markets competitive underwriting environment, insurance
and comprising over 90% of Marsh’s premium. pricing has been affected by an absence of significant
Among the index’s regional highlights, the Pacific catastrophe losses in recent years. Insured global
showed an increase in average pricing in the second natural catastrophe losses totalled US$19.5 billion
quarter, with average property rates in the region in the first half of 2017, according to Munich Re.1
increasing for the first time since 2013. The index’s Those losses compare to an annual average of US$29
overall decline is largely due to the continuation of billion for the corresponding six-month periods of
significant capacity in the global insurance market the last 10 years, according to the Munich Re data.
and a competitive underwriting environment.

Figure 1: Global Insurance Market Index

Source: Marsh Global Analytics

1.004 1.007 1.010 1.011 1.010 1.008 1.005

1.000 1.001
0.994 0.998
0.977
0.967
0.956
0.944
0.932
0.923
0.915
0.908 0.901
0.895 0.890
Q1 12

Q2 12

Q3 12

Q4 12

Q1 13

Q2 13

Q3 13

Q4 13

Q1 14

Q2 14

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Q4 15

Q1 16

Q2 16

Q3 16

Q4 16

Q1 17

Q2 17

The Marsh Global Insurance Market Index captures a rolling four-quarter view of rate movement, providing a
quarter-to-quarter look at changes in the marketplace. The rate change captures year-over-year rate movement,
measured quarterly.

Marsh • 55
Economic Impacts

Figure 2: Global Insurance Composite Rate Change

Source: Marsh Global Analytics

1.4% 1.4%
1.2% 1.2%

0.3%

-0.4%
-0.7%
-1.0%
-1.6%
-2.3% -2.2%
-2.7% -2.8%
-3.2% -3.1%
-3.6%
-3.8%
-4.2% -4.2%
-4.4%
-4.8%
-5.0%
Q1 12

Q2 12

Q3 12

Q4 12

Q1 13

Q2 13

Q3 13

Q4 13

Q1 14

Q2 14

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Q4 15

Q1 16

Q2 16

Q3 16

Q4 16

Q1 17

Q2 17
AVERAGE CASUALTY INSURANCE RATES DECLINE
Insurance rates in the second quarter declined globally, on In the UK, composite insurance rate decreases in the second
average, across all major product lines— property, casualty, quarter of 2017 remained, on average, greater than the global
and financial and professional coverages. The global casualty rate of decline. The average rate of decline for the UK was 4.2%
composite index was the one area in which the rate of pricing in the second quarter, compared to 4.8% in the prior quarter.
decline was higher in the second quarter compared to the first, Renewal rates declined in the UK across all major product lines,
driven by the US market. although the average rate of decline moderated in casualty from
4.2% to 1.7%.
The change in US casualty lines was largely due to an increase in
the average rate of decline in workers’ compensation pricing and Also in the second quarter:
a smaller, continuing increase in average auto liability pricing.
General liability renewal rates also declined in the second quarter, •• In Latin America, average casualty insurance rates
after posting slight increases in the previous quarter. increased for the fourth consecutive quarter.

•• In continental Europe, property pricing, on average, declined

at the lowest rate since the fourth quarter of 2014.

Figure 3: Global Composite Insurance Rate Change by Coverage Line

Source: Marsh Global Analytics

GLOBAL PROPERTY GLOBAL CASUALTY GLOBAL FINPRO

-0.6%

-1.7%
-1.9%

-2.6%
-2.8% -2.8%
-3.0%

-3.6%

-4.2%

Q4 16 Q1 17 Q2 17 Q4 16 Q1 17 Q2 17 Q4 16 Q1 17 Q2 17

56 • Emerging Risks in Construction

 Economic Impacts

US CYBER LIABILITY RENEWAL RATES DECREASE FOR

SECOND QUARTER IN A ROW
US cyber liability rates decreased 1.5% on average, in the second quarter of 2017 - the first time since 2012 that
average cyber rates declined for two consecutive quarters. As in other lines, overall capacity is increasing as new
insurers enter and existing ones expand their capacity levels.

At the same time, rate improvement continues in the sectors that were most affected by cyber events in recent
years. As cybersecurity investments from these firms take effect and the claims environment improves, the
general unwinding of historic cyber insurance rate increases is reducing overall market rate change, on average.
We will watch closely in the coming months to see what, if any, impact recent high-profile events—including the
WannaCry and Petya/GoldenEye malware attacks—have on the cyber insurance markets.

Figure 4: US Cyber Liability Renewal Rates

Source: Marsh Global Analytics

20.0%
19.1% 18.7%
16.9%

12.8%
US CYBER LIABILITY

12.0%

6.8% 6.9%
5.4% 4.8% 5.2%
4.1%
3.3%
1.4%
0.1% 0.4% 0.2%
-0.3% -0.8%
-1.7% -1.5%
-2.4%
Q1 12

Q2 12

Q3 12

Q4 12

Q1 13

Q2 13

Q3 13

Q4 13

Q1 14

Q2 14

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Q4 15

Q1 16

Q2 16

Q3 16

Q4 16

Q1 17

Q2 17

THIS ARTICLE FIRST APPEARED ON BRINK.

Marsh • 57
Insurance Impacts

58 • Emerging Risks In Shipping

 Economic Impacts

DECONSTRUCTING A
DIFFERENT KIND OF
“NUCLEAR SPILL”
AUTHOR: MARK POLLARD, GLOBAL PRACTICE LEADER NUCLEAR AND RENEWABLE ENERGY AT MARSH

Just as technology from space Decommissioning is an important part of this rigor;

detailed plans need to be made about how it will be
travel has spilled into our kitchens carried out, what the timing is, what the costs will
and garages, a sort of “nuclear be, and how those costs will be funded. The focus on
spill” is going on, too. The process decommissioning is relatively recent; a consequence
of legacy costs passed to the present generation from
of nuclear decommissioning, past decades, when environmental and regulatory
and the methodology behind considerations were less stringent. Action needs to be
developing adequate funding taken today on behalf of future generations.

where regulators and civil society The job is simple to define, but devilish to execute:
opinion allow no slack, can find Model the expected decommissioning costs
application in many energy and annualized over the decades necessary to complete
the process, understand the volatilities in the model,
industrial contexts. and then match a funding plan to optimize the
investment returns while retaining enough flexibility
Planners of new nuclear projects are obsessed in the cash-out period to allow for the volatilities.
with detail. Investors, equipment manufacturers,
plant operators, and regulators alike leave nothing The world is full of infrastructure where the future
to chance. Nuclear safety and ensuring returns decommissioning is unfunded or underfunded.
on investment drive the rigor; every aspect of the Power stations, oil rigs, mines, and even solar farms
planning, construction, operation, and ultimately will need to be removed sooner or later, and future
dismantling is defined, configured, integrated, and costs on balance sheets will embarrass managers
stress tested beyond doubt. and disgruntle shareholders. In some cases, the costs
won’t be met, and the infrastructure will rot and rust
Construction period and cost overruns, for which until the taxpayer steps in.
new nuclear projects are well-known, have usually
been due to inadequate definition of design and
construction methodologies or the application of yet Construction period and cost
more layers of regulatory attention.
overruns, for which new nuclear
projects are well-known, have
usually been due to inadequate
definition of design and
construction methodologies or the
application of yet more layers of
regulatory attention.

Marsh • 59
Economic Impacts

Figure 1: Locations of Nuclear Power Reactor Sites Undergoing Decommissioning

Source: US Nuclear Regulatory Commission

WASHINGTON MAINE
NORTH MINNESOTA
MONTANA DAKOTA VERMIONT
NEW
HAMPSHIRE
NEW MASS.
OREGON WISCONSIN YORK
SOUTH MICHIGAN CT RI
IDAHO DAKOTA
WYOMING NJ
PENNSYLVANIA
IOWA MARY-
NEBRASKA OHIO LAND DE
NEVADA INDIANA WEST
ILLINOIS VIRGINIA
UTAH VIRGINIA
COLORADO
KANSAS MISSOURI
KENTUCKY
CALIFORNIA NORTH
CAROLINA
TENNESEE
SOUTH
OKLAHOMA ARKANSAS CAROLINA
ARIZONA NEW
MEXICO ALABAMA GEORGIA
MISSISSIPPI

TEXAS LOUISIANA

FLORIDA

Gulf of Mexico

FINDING FUNDING FOR THE LONG RUN

Fortunately, few decommissioning tasks are as In some cases existing funds or vehicles, for example,
lengthy or as complicated as nuclear projects so captive insurance companies, can be used to create
the first part of the job is simpler; the annualized an integrated funding solution that leaves fund
decommissioning cost model will be more security intact but improves investment returns and
straightforward and less volatile. But the second long-term financial sustainability.
part, matching a funding mechanism for existing
assets, will often have the additional complexity of What goes up must come down. The need to
a short (or even nonexistent) residual life during decommission should be entirely predictable from
which revenue can be harvested to feed the fund. the outset of any infrastructure project. But more
In these circumstances, the optimization of the often than not, the costs are underestimated: The
fund resources, including top-ups needed to meet now defunct UK Department of Energy and Climate
the overall projected costs, becomes even more Change estimated that oil and gas decommissioning
important to protect shareholders from shouldering costs on the UK Continental Shelf, on average, are
costs from the past and managers from having to 40% over budget. The unpredictability extends to
plunder current revenue. the timing, too, and schedules can be affected by
events happening outside of an individual plant: In
In many cases a portfolio can be constructed, so the aftermath of the Fukushima disaster, Germany
the funding flexibility is improved. Putting together declared the end of nuclear power in the country by
future decommissioning obligations, at different 2022, foreshortening power plant life and hastening
times and for different asset types, enhances the fund the decommissioning obligation.
manager’s options to keep more assets locked into
better returns for a longer period of time.

60 • Emerging Risks in Construction

 Economic Impacts

Clever funding can take away some of the cash flow

risk and improve the predictability of the annualized
Clever funding can take away some
cost over a period, to the delight of CFOs. But what
about the truly unpredictable risks?
of the cash flow risk and improve
What if adverse circumstances occur notwithstanding
the predictability of the annualized
the diligent investigation and planning of the owner
of the assets? Such risks are the domain of the
cost over a period.
insurance industry. Insurers will steer clear of insuring
against inadequate planning (although they can
THIS ARTICLE FIRST APPEARED ON BRINK.
cover consequent material damage or liabilities).
They will thrive on the unexpected and, in an industry
awash with capital, are keen to deploy capacity in
new areas.

So far the insurance solutions offered to

protect against unexpectedly onerous
decommissioning costs are few and the market
is immature. Insurers should watch this space:
The constraint is ripe for dismantling.

Marsh • 61
Marsh’s Construction and Real Estate Practice

ABOUT MARSH’S
PRACTICE

62 • Emerging Risks in Construction

 Marsh’s Construction and Real Estate Practice

S CONSTRUCTION

Marsh • 63
Marsh’s Construction and Real Estate Practice

64 • Emerging Risks in Construction

 Marsh’s Construction and Real Estate Practice

ABOUT MARSH’S
CONSTRUCTION
PRACTICE
This report has been produced by Marsh’s Global Construction Practice,
which is at the forefront of brokering insurance and advising the
construction industry on risk and insurance issues.

Our team helps you assess risks and opportunities and •• Our ability to manage contractual risk allocation.
uncover ways to use working capital more efficiently.
We measure your firm’s appetite for risk, recommend •• A targeted placement strategy which uses
solutions that meet your needs, and take your program to the strength of Marsh’s global account and,
market knowing the best insurers for the best structure for international projects, considers the most
and pricing. competitive underwriters, irrespective of their
geographical location.
Our strengths include:
THE RESULT
•• The depth of our resources, experience,
and expertize. Marsh’s Global Construction Practice is an
international team operating across geographical
•• Our network of offices working closely with boundaries, which offers you opportunities
regional specialists. and solutions to meet your needs.

•• Bespoke policy wording and program design.

TORONTO
LONDON
NEW YORK

HONG KONG
DUBAI

Marsh operations SANTIAGO

JOHANNESBURG
Service provided by
correspondent/regional office MELBOURNE
No Marsh operations or
service capabilities
Cities where regional leaders
are based

Marsh • 65
Marsh’s Construction Practice

IN ADDITION, WE HAVE ACCESS TO INDUSTRY SPECIALISTS

IN MANY FIELDS INCLUDING:

POWER MINING AND

The International Energy Agency predicted that
a total of 5,890 GW of additional power capacity
PROCESS
would be required between 2012 and 2035.
This need for ever-increasing sources of power
ENGINEERING
As the mining and process engineering
on a global level continues to create ongoing
industry copes with volatility issues affecting
opportunities for the construction of new plants
market price and demand, the importance
and facilities. At the same time, competition is
of maintaining a strong balance sheet is
driving manufacturers to constantly develop new
at the heart of many organisations.
technology, presenting unknown challenges to
contractors, risk managers, investors, and insurers.
This need drives the significant investments made
Marsh’s power specialists maintain an up-to-date
in cash regenerative assets, and the projects
knowledge of technological developments through
from which they grow, leading to investments
regular contact with manufacturers and sector
in all areas of the globe. It is unsurprising
insurers. We have dedicated teams that focus on
that protecting such assets and projects is a
the thermal, nuclear, and renewable power sectors.
vital part of risk management strategy.
We offer the opportunity to work with professionals
OIL, GAS, AND who understand the challenges you face. Marsh

PETROCHEMICALS appreciates the tough commercial environment of

your industry and its increased vulnerability to risk.
With the fluctuating environment of the oil,
gas, and petrochemical industry comes the
need to develop new and cutting-edge risk
solutions to meet the industry’s needs and
requirements. Every project demands a bespoke
suite of cost-efficient insurance services.

Marsh’s energy risk engineering team is well

qualified to provide risk managers and underwriters
with the essential information they need to
determine the right limits, scope of cover, and price.
Our in-depth knowledge and understanding of the
sector provides you with comprehensive contract
reviews and advice at the early stage of any project.

66 • Emerging Risks in Construction

 Marsh’s Construction Practice

INFRASTRUCTURE CONTRACTORS
AND CIVIL Some construction companies procure contract
works insurance policies on a case-by-case ad-hoc
ENGINEERING basis when required to do so as a contractual
obligation or requirement.
Experience has shown that the negative time
and cost impact of major risks, such as varying
While this may be an appropriate and necessary
geological conditions and exposure to natural
approach for very large projects, for heavy civil
hazards, can be particularly severe in the
works (such as tunneling and wet works), and
infrastructure sector.
projects in specific natural catastrophe zones, there
is an effective and advantageous alternative to
These risks create a wide range of exposures
insure a contractor’s portfolio.
linked to areas of design, construction, interfacing,
and sequencing which must be continually
Marsh works with many national and multinational
evaluated and managed by the project team. Risk
contractors to design and arrange annual or multi-
management strategy must be tailored to minimize
year insurance facilities that automatically include
the impact of specific risks on the project works,
all projects within pre-agreed parameters and limits,
existing infrastructure, construction equipment,
without the need to arrange single project policies
and third parties, in particular.
on a case-by-case basis.

Marsh experts work with owners, contractors,

A contractor facility should be carefully designed
engineering consultants, and project partners
and tailored to cater for your specific requirements
to implement innovative risk management and
and profile, as well as taking into account insurance
transfer solutions for many of the world’s most
market conditions, and we would recommend an
technically challenging construction projects. Our
initial meeting is held to discuss these key issues.
dedicated risk engineering services and broking
capabilities are proven to support project delivery –
on time and on budget.

Marsh • 67
Marsh’s Global Marine Practice

68 • Emerging Risks In Shipping

 Marsh’s Construction and Real Estate Practice

CONTACTS
For more information on any of the topics discussed, please
contact a colleague below or your local Marsh office.

Alternatively, you can visit our website: www.marsh.com

GLOBAL CONSTRUCTION LATIN AMERICA

PRACTICE, INTERNATIONAL REGIONAL LEADER
CHAIRMAN JOAO BUZIO
JONATHAN MARSH + 44 (0)20 7357 3971
+44 (0)20 7357 1510 [email protected]
[email protected]
MIDDLE EAST AND NORTH
GLOBAL CONSTRUCTION AFRICA REGIONAL LEADER
SALES LEADER GAURAV BHATNAGAR
ANDREW FOAD +971 4212 9142
+ 44 (0)20 7357 5947 [email protected]
[email protected]
PACIFIC REGIONAL LEADER
AFRICAN REGIONAL LEADER ROBERT PASQUINI
+61 3 9603 2989
ALVIN DYE
[email protected]
+27 11060 7205
[email protected]
CANADIAN REGIONAL
ASIAN REGIONAL LEADERS LEADER
STEVE HUTCHINSON PATRICK BAKER
+852 2301 7310 +1 (416) 349 4430
[email protected] [email protected]

IAN W BROWN
+852 2301 7322 US NATIONAL
[email protected] CONSTRUCTION LEADERS
DAVID MARINO
UK REGIONAL LEADER +1 212 345 6639
[email protected]
PHIL LAZELL
+44 (0)207 178 4230 ADRIAN PELLEN
[email protected] +1 312 627 6146
[email protected]
CONTINENTAL EUROPE
REGIONAL LEADER TECHNICAL SPECIALIST
NICK HOLMES MICHAEL SPENCER
+44 (0)7711 083261 +44 (0)207 357 5219
[email protected] [email protected]

Marsh • 69
 FOOTNOTES
PERSPECTIVES ON INNOVATION 4. Enderle, Rob. “Airbus Enters Human Carrying Drone
Race: But Where Are Ford and GM?”, available at
http://www.techzone360.com/topics/techzone/
DISRUPTIVE TECHNOLOGY BRINGS RISK articles/2017/01/16/428813-airbus-enters-human-carrying-
AND OPPORTUNITY TO INFRASTRUCTURE drone-race-but-where.htm, accessed 1 November 2017.
PROJECTS
5. Niquette, Mark. “FedEx Pushes for Infrastructure Fix as Trump
1. World Economic Forum. Shaping the Future of Construction: Eyes Investment,” Bloomberg, available at https://www.
A Breakthrough in Mindset and Technology, available at http:// bloomberg.com/news/articles/2017-02-01/fedex-pushes-for-
www3.weforum.org/docs/WEF_Shaping_the_Future_of_ infrastructure-fix-as-trump-weighs-investment, accessed
Construction_full_report__.pdf, accessed 1 November 2017. 1 November 2017.
2. Redpoint Positioning. “Redpoint Positioning Showcases 6. Moore, James A. “What the Future of Cities Can Learn From
Wearable Safety Alert System for Industrial Construction Sites,” Ancient Cities,” available at https://www.autodesk.com/
available at https://www.redpointpositioning.com/redpoint- redshift/the-future-of-cities/, accessed 1 November 2017.
positioning-news-wearable-safety-alert-system-for-industrial-
construction-sites/, accessed 1 November 2017. 7. Meko, Tim. “Six maps that show the anatomy of America’s vast
infrastructure,” Washington Post, available at https://www.
3. Balfour Beatty. Innovation 2050 - A Digital Future for the washingtonpost.com/graphics/national/maps-of-american-
Infrastructure Industry, available at https://www.balfourbeatty. infrastrucure/?tid=ss_tw, accessed 1 November 2017.
com/2050, accessed 1 November 2017.
8. National Geographic. “Four Million Commutes Reveal New U.S.
4. Gilchrist, Karen. “Technological development will cause tension ‘Megaregions’,” available at http://news.nationalgeographic.
- and it’s a good thing, say ‘Summer Davos’ execs,” CNBC, com/2016/11/us-commutes-reveal-new-economic-
available at https://www.cnbc.com/2017/06/29/technology- megaregions-map/#/01megaregions.jpg, accessed
tension-summer-davos-exec.html, accessed 1 November 2017. 1 November 2017.
5. World Economic Forum. The Global Risks Interconnections 9. Pianin, Eric. “How Big Cities Mine Big Data to Solve Big
Map 2017, available at http://reports.weforum.org/global- Problems,” The Fiscal Times, available at http://www.
risks-2017/global-risks-landscape-2017/#risks, accessed thefiscaltimes.com/2015/02/05/How-Big-Cities-Mine-Big-
1 November 2017. Data-Solve-Big-Problems, accessed 1 November 2017.
6. GI Hub. “Forecasting infrastructure investment needs and 10. Trieu, Rosa. “What Is the Future of Smart Cities?”, available at
gaps,” available at https://outlook.gihub.org/, accessed https://www.autodesk.com/redshift/smart-cities/, accessed
1 November 2017. 1 November 2017.

11. “Planning Sustainable Cities,” available at http://zofnass.gsd.

HOW DATA AND TECH WILL FUEL MEGACITIES harvard.edu/planning/, accessed 1 November 2017.
OF THE FUTURE
12. Patel, Neel V. “7 Planned Cities Designed to Change Our
1. Frontline World. “South Korea: The Most Wired Place on Earth,”
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available at http://www.pbs.org/frontlineworld/stories/
article/5062-7-planned-cities-designed-to-change-our-urban-
south_korea802/video/video_index.html, accessed
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1 November 2017.
13. Elliott, Teresa. “Reconstructing a town – with BIM,” available
2. Futurism. “This $26 Billion Underwater City Could Be Ready in
at http://bimontherocks.com/reconstructing-a-town-with-
15 Years,” available at https://futurism.com/videos/this-26-
bim/, accessed 1 November 2017.
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1 November 2017. 14. Harrington, Rebecca. “These will be the 10 biggest cities in
2015,” available at http://uk.businessinsider.com/10-most-
3. Adler, David. “Story of cities #37: how radical ideas turned
populous-cities-2050-2016-2/?r=US&IR=T, accessed
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1 November 2017.
theguardian.com/cities/2016/may/06/story-of-cities-37-
mayor-jaime-lerner-curitiba-brazil-green-capital-global-icon,
accessed 1 November 2017.

70 • Emerging Risks in Construction

CONSTRUCTION MACHINES IN THE INTERNAL THREATS: FIVE WAYS
DIGITAL AGE EMPLOYEES AND BUSINESS PARTNERS
1. Sleight, Chris. “Global Construction Equipment Market to PUT IP AND DATA AT RISK
Recover in 2017,” available at http://blog.marketresearch. 1. Ponemon Institute. Corporate Data: A Protected Asset or a
com/global-construction-equipment-market-to-recover- Ticking Time Bomb?, available at http://info.varonis.com/hs-fs/
in-2017, accessed 1 November 2017. hub/142972/file-2194864500-pdf/ponemon-data-breach-
study.pdf?&__hssc=&__hstc&hsCtaTracking=c771f50d-6a90-
42c2-97d0-868ac3bcfc5b%7C510f5a1e-60a8-4304-b497-
THE RISING IMPORTANCE OF THE 8ec886f3ca3c, accessed 1 November 2017.
“SECONDARY CITY”
1. “The Architectural Heritage of Tianjin,” China Heritage 2. Yonhap News Agency. “Bizmen indicted for leaking trade
Quarterly, available at http://www.chinaheritagequarterly.org/ secrets of ex-Daewoo Motor to China,” available at http://
editorial.php?issue=021, accessed 1 November 2017. english.yonhapnews.co.kr/national/2014/12/03/51/030100
0000AEN20141203002700315F.html, accessed
2. Reuters. “Hundreds of Firms Are About to Pour $23 Billion into 1 November 2017.
a Proposed Chinese ‘Megacity’,” available at http://fortune.
com/2016/11/25/tianjin-investment-beijing-china/, accessed 3. Kyodo. “Benesse suspect gets fresh warrant over second data
1 November 2017. theft,” The Japan Times, available at https://www.japantimes.
co.jp/news/2014/08/11/national/crime-legal/benesse-
3. Jackson, David. “The new urban imperative for secondary suspect-gets-fresh-warrant-over-second-data-theft/#.
cities,” available at http://citiscope.org/habitatIII/ Wa54CVGQxpi, accessed 1 November 2017.
commentary/2016/11/new-urban-imperative-secondary-
cities, accessed 1 November 2017.
ENVIRONMENTAL IMPACTS
4. Roberts, Brian H. Managing Systems of Secondary Cities,
available at https://www.citiesalliance.org/sites/citiesalliance.
SPENDING MORE TO MAKE INFRASTRUCTURE
org/files/1d%20(i)%20-%20Managing%20Systems%20of%20
Secondary%20Cities%20Book_low_res.pdf, accessed
SUSTAINABLE
1 November 2017. 1. Moreno, Luis Alberto; Stern, Nicholas. “Smart infrastructure
is the key to sustainable development,” The Guardian,
5. Cities Alliance, available at http://www.citiesalliance.org/, available at https://www.theguardian.com/public-leaders-
accessed 1 November 2017. network/2016/may/10/smart-infrastructure-sustainable-
development-low-carbon-transport, accessed
6. Shepard, Wade. “A Look At 7 New Cities Rising Along The New
1 November 2017.
Silk Road,” Forbes, available at https://www.forbes.com/sites/
wadeshepard/2016/09/20/7-new-cities-that-are-rising- 2. The New Climate Economy. The Sustainable Infrastructure
along-the-new-silk-road/#6ea790631300, accessed Imperative: Financing for Better Growth and Development,
1 November 2017. available at http://newclimateeconomy.report/2016/
wp-content/uploads/sites/4/2014/08/NCE_2016Report.pdf,
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accessed 1 November 2017.
ny.gov/programs/upstate-revitalization-initiative, accessed 5
September 2017. 3. Inter-American Development Bank. Financing Infrastructure
in Latin America and the Caribbean: How, How much and by
8. Barboza, David. “How China Built ‘iPhone City’ With Billions
Whom?, available at https://publications.iadb.org/bitstream/
in Perks for Apple’s Partner,” The New York Times, available at
handle/11319/7315/Infrastructure%20Financing.%20
https://www.nytimes.com/2016/12/29/technology/apple-
Definitivo.pdf?sequence=1, accessed 1 November 2017.
iphone-china-foxconn.html?_r=0, accessed 1 November 2017.
4. Moreno, Luis Alberto; Stern, Nicholas. “Smart infrastructure
9. ESPON. Second Tier Cities and Territorial Development in Europe:
is the key to sustainable development,” The Guardian,
Performance, Policies and Prospects, available at https://
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www.espon.eu/programme/projects/espon-2013/applied-
network/2016/may/10/smart-infrastructure-sustainable-
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accessed 1 November 2017.
1 November 2017.
10. Upbin, Bruce. “Five Maps That Improve Our View Of
America’s Megaregions,” available at https://hyperloop-
one.com/blog/five-maps-improve-our-view-americas-
megaregions, accessed 1 November 2017.

Marsh • 71
 DRAMATIC DROP IN GLOBAL COAL PLANT IN US, RENEWABLE ENERGY SURPASSES
CONSTRUCTION NUCLEAR GENERATION…FOR NOW
1. The White House Office of the Press Secretary. “Presidential 1. U.S. Energy Information Administration. “Monthly renewable
Executive Order on Promoting Energy Independence and electricity generation surpasses nuclear for the first time since
Economic Growth,” available at https://www.whitehouse.gov/ 1984,” available at https://www.eia.gov/todayinenergy/
the-press-office/2017/03/28/presidential-executive-order- detail.php?id=31932, accessed 1 November 2017.
promoting-energy-independence-and-economi-1, accessed
1 November 2017. 2. U.S. Energy Information Administration. “Short-term Energy
Outlook,” available at https://www.eia.gov/outlooks/steo/
2. Shearer, Christine; Ghio, Nicole; Myllyvirta, Lauri; Yu, Aiqun; report/electricity.cfm, accessed 1 November 2017.
Nace, Ted. Boom and Bust 2017: Tracking the Global Coal
Plant Pipeline, available at http://endcoal.org/wp-content/ 3. Organisation for Economic Co-operation and Development.
uploads/2017/03/BoomBust2017-English-Final.pdf, accessed The Role of Nuclear Energy in a Low-carbon Energy Future,
1 November 2017. available at https://www.oecd-nea.org/nsd/reports/2012/
nea6887-role-nuclear-low-carbon.pdf, accessed
3. Rushe, Dominic. “Top US coal boss Robert Murray: Trump 1 November 2017.
‘can’t bring mining jobs back’,” The Guardian, available at
https://www.theguardian.com/environment/2017/mar/27/ 4. U.S. Energy Information Administration. “Record precipitation,
us-coal-industry-clean-power-plan-donald-trump, accessed snowpack in California expected to increase hydro generation
1 November 2017. in 2017,” available at https://www.eia.gov/todayinenergy/
detail.php?id=30452, accessed 1 November 2017.
4. BRINK Editorial Staff. “NatGas Trumps Coal in U.S. Power
Usage,” available at http://www.brinknews.com/natgas- 5. U.S. Energy Information Administration. “U.S. electric
trumps-coal-in-u-s-power-usage/, accessed 1 November 2017. generating capacity increase in 2016 was largest net change
since 2011,” available at https://www.eia.gov/todayinenergy/
5. World Energy Council. Energy Trilemma Index, available at detail.php?id=30112, accessed 1 November 2017.
https://trilemma.worldenergy.org/, accessed
1 November 2017. 6. U.S. Energy Information Administration. “Three Mile Island is
the latest nuclear power plant to announce retirement plans,”
6. Watt, Louise. “China’s coal consumption falls for 3rd available at https://www.eia.gov/todayinenergy/detail.
year in a row,” available at https://apnews.com/ php?id=31612, accessed 1 November 2017.
a55827924d944698ae0cbb28af5aeb4e/chinas-coal-
consumption-falls-3rd-year-row, accessed 1 November 2017.
ECONOMIC IMPACTS
7. UN Climate Action. “India could eliminate the use of coal by
2050,” available at http://www.climateactionprogramme.org/
PREPARING BANKABLE INFRASTRUCTURE
news/india_could_eliminate_the_use_of_coal_by_2050,
accessed 1 November 2017. PROJECTS
1. Global Business Coalition. “B20 Germany hands over its policy
recommendations to the G20 Presidency,” available at http://
www.globalbusinesscoalition.org/global-governance-news/
b20-germany-hands-key-policy-recommendations-g20-
presidency/, accessed 1 November 2017.

2. B20 Taskforce. Investing in Resilient, Future-oriented Growth:

Boosting Infrastructure Investment and Balancing Financial
Regulation, available at http://www.globalbusinesscoalition.
org/wp-content/uploads/2017/05/B20_FGI_Policy_
Paper_13042017.pdf, accessed 1 November 2017.

72 • Emerging Risks in Construction

ASIA NEEDS US$26 TRILLION IN 7. S&P Global Ratings. “A $1 Trillion Gap: Could Traditional And
INFRASTRUCTURE INVESTMENT FROM 2016- Alternative Bundling Approaches Help Revive North America’s
Water System?”, available at https://www.capitaliq.com/
2030
CIQDotNet/CreditResearch/RenderArticle.aspx?articleId=
1. Asian Development Bank. Meeting Asia’s Infrastructure 1883264&SctArtId=431388&from=CM&nsl_code=LIME&so
Needs, available at https://www.adb.org/sites/default/ urceObjectId=10123210&sourceRevId=5&fee_ind=N&exp_
files/publication/227496/special-report-infrastructure.pdf, date=20270714-21:19:55, accessed 1 November 2017.
accessed 1 November 2017.
8. S&P Global Ratings. Can Colombia’s 4G Toll Road Concession
Program Shift To A Faster Lane?, available at https://www.
ROAD TO ECONOMIC GROWTH PAVED WITH spratings.com/documents/20184/1634005/CO_IFR_
EFFICIENT INFRASTRUCTURE INVESTMENT May19_2017_CanColombias4GTollRoadConcessionProgramS
1. S&P Global Ratings. Developing U.S. Infrastructure In An hiftToAFasterLane/3b59aaa8-2b86-4e45-bf30-029672e98fc8,
Era Of Emerging Challenges, available at https://www. accessed 1 November 2017.
spratings.com/documents/20184/1481001/Infrastructure_ 9. Standard & Poor’s Rating Services. Why Projects Fail 20
Umbrella_061317/d6970b9d-568e-41dd-9eb0- Years Of Rating Project Finance Debt, available at http://
c1bcb1c45d30, accessed 1 November 2017. www.spcapitaliq-credit.com/cms/wp-content/uploads/
2. Ibid. Why_Projects_Fail_20_Years_Project_Finance_14Oct.
pdf?t=1414398278, accessed 1 November 2017.
3. Europa. “Investment Plan, For Europe: The Junker Plan”
available at https://ec.europa.eu/commission/priorities/jobs- 10. Fernandez, Gonzalo Cantabrana. “Spain’s infrastructure woes
growth-and-investment/investment-plan_en, accessed are more serious than they appear,” World Finance, available
1 November 2017. at https://www.worldfinance.com/infrastructure-investment/
government-policy/spains-infrastructure-woes-are-more-
serious-than-they-appear, accessed 1 November 2017.
4. Reuters. “Australia’s Endeavour Energy sold to Macquarie-led
consortium for $5.6 bln,” available at https://www.reuters.
com/article/australia-utilities-privatisation-price/australias-
COMMERCIAL INSURANCE RATES CONTINUE
endeavour-energy-sold-to-macquarie-led-consortium-for-5-6- DECLINE IN LIGHT OF GLOBAL MARKET FORCES
bln-idUSS9N1I300E, accessed 1 November 2017. 1. Munich Re. “Natural catastrophe review for the first half of
2017: A series of powerful thunderstorms in the USA causes
5. Godfrey, Miles. “WestConnex end stage to be funded through
large losses,” available at https://www.munichre.com/en/
privatisation,” The Daily Telegraph, available at http://www.
media-relations/publications/press-releases/2017/2017-07-
dailytelegraph.com.au/news/nsw/westconnex-end-stage-to-
18-press-release/index.html, accessed 1 November 2017.
be-funded-through-privatisation/news-story/50989e8222558
463795787738c8aceb0, accessed 1 November 2017.

6. S&P Global Ratings. Spanish Solar Project Vela Energy Bonds

Assigned ‘BBB’ Rating; Outlook Stable, available at http://
velaenergy.com/cms/wp-content/uploads/Vela-Energy-
Project-Bond-Rating-Report-SP.pdf, accessed
1 November 2017.

Marsh • 73
 ABOUT MARSH
Marsh is a global leader in insurance broking and innovative risk management solutions.
In more than 130 countries, our experts help clients to anticipate, quantify, and more
fully understand the range of risks they face. In today’s increasingly uncertain global
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We work with clients of all sizes to define, design, and deliver innovative solutions
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We are a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC),
the leading global professional services firm in the areas of risk, strategy
and people. With 60,000 colleagues worldwide and annual revenue
exceeding $13 billion, Marsh & McLennan Companies also include
global leaders Guy Carpenter, Mercer, and Oliver Wyman.

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WE SERVE CLIENTS
IN MORE THAN

130
COUNTRIES
500 MARSH
OFFICES
WORLDWIDE GLOBALLY
30,000
EMPLOYEES

74 • Emerging Risks in Construction

ABOUT THE GLOBAL
RISK CENTER
Marsh & McLennan Companies’ Global Risk Center addresses the most critical
challenges facing enterprise and societies around the world. The center draws on the
resources of Marsh, Guy Carpenter, Mercer, and Oliver Wyman – and independent
research partners worldwide – to provide the best consolidated thinking on these
transcendent threats. We bring together leaders from industry, government, non-
governmental organizations, and the academic sphere to explore new approaches to
problems that require shared solutions across businesses and borders. Our Asia Pacific
Risk Center in Singapore studies issues endemic to the region and applies an Asian
lens to global risks. Our digital news services, BRINK and BRINK Asia, aggregate timely
perspectives on risk and resilience by and for thought leaders worldwide.

ABOUT BRINK
All of these articles appeared on BRINK – the digital news service of Marsh & McLennan
Companies’ Global Risk Center, managed by Atlantic Media Strategies. BRINK gathers
timely perspectives from experts on risk and resilience around the world to inform
business and policy decisions on critical challenges.

Marsh • 75
The information contained herein is based on sources we believe reliable
and should be understood to be general risk management and insurance
information only. The information is not intended to be taken as advice with
respect to any individual situation and cannot be relied upon as such.
In the United Kingdom, Marsh Ltd is authorised and regulated by
the Financial Conduct Authority.
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GRAPHICS NO. 17-0617