Australia’s construction sector is in the midst of a generational surge – from high-rise residential towers to billion-dollar defence infrastructure and data centres. But while cranes dot the skyline, a quieter tension is playing out in the underwriting offices of insurers and reinsurers, as they weigh growth opportunity against a sharp rise in claims, climate risk and project complexity.
According to Aon’s 2025 Global Construction Insurance and Surety Market Report, released this week, the insurance environment for the building industry is softening globally – particularly in markets like Asia-Pacific – yet many insurers remain cautious about the risk profiles emerging in Australia.
“The market is buoyant, but insurers are no longer chasing growth blindly,” the report notes. “They’re asking hard questions about risk control, project design and climate exposure – especially in Australia.”
Much of the activity in Australia is concentrated in the housing sector. Build-to-rent and build-to-sell models are thriving, and demand for principal-arranged insurance programs – especially covering advance loss of profit and delay-in-startup risks – has soared. Developers, mindful of contractor insolvency trends, are increasingly taking insurance into their own hands.
Insurers are responding with greater scrutiny. Water damage remains the leading cause of claims, and detailed water management plans – including leak detection systems – are now considered essential to securing favourable terms.
“Water ingress is to Australian construction what wildfire is to Californian property,” one underwriter quipped.
Latent defects insurance (LDI) has gained momentum as state governments consider regulatory reform aimed at improving protections for homeowners and future property buyers.
Major infrastructure projects remain central to Australia’s construction narrative. From Sydney Metro West to naval shipbuilding in South Australia, the federal government is pouring billions into long-term, complex builds.
Insurers have embraced Project Alliance Agreements as a preferred structure, citing benefits such as shared risk, improved collaboration and faster delivery. The model has led to cost savings and better project outcomes, particularly for large transport and energy works.
Yet there is a hard edge to underwriting appetite. In parts of the country exposed to bushfires, floods or cyclones, full-limit catastrophe cover is no longer a given. Tailored excess-of-loss and alternative risk transfer (ART) arrangements are increasingly used to plug the gap – though at higher cost.
Notably, the defence sector is seen as a bright spot. Insurers regard technology and defence-related construction – from data centres to military aircraft facilities – as preferred risks, provided contractors have a proven track record.
Australia’s exposure to climate perils is shaping insurance terms across property and casualty classes. Insurers are blunt: in some areas, they will not provide full natural catastrophe limits. “
Bushfire exposure, especially in peri-urban regions, is now a key concern. And with convective storm systems intensifying, reinsurers are pressing local carriers to tighten limits, raise deductibles and improve loss mitigation.
Aon’s report points to the broader global trend: in 2024, natural catastrophes caused $368 billion in economic losses worldwide – 14 per cent above the long-term average. While parametric insurance and ART solutions are gaining popularity, the gap between available capacity and risk appetite is widening.
The surety market in Australia is maturing, supported by demand for off-balance-sheet solutions and regulatory changes in neighbouring markets. Contractors are increasingly using surety bonds as an alternative to bank guarantees, particularly on infrastructure projects.
Yet the outlook for residential surety remains cautious. Recent loss activity in housing construction – compounded by builder insolvencies and claims volatility – has made underwriters wary. Growth is expected in commercial and export-related sectors, but underwriters remain highly selective on residential deals.
Professional indemnity (PI) coverage – including for architects, engineers and surveyors – remains stable but nuanced. There are signs of softening in the primary and excess markets for non-challenged risks, though project-specific PI remains constrained and costly.
Insurers have increased their willingness to provide loss mitigation extensions and broaden cyber language, but remain firm on “silent cyber” exclusions and clarity around consequential loss.
In casualty lines, competition has returned. Local and international insurers are actively competing for project business, particularly outside residential. However, for contractors involved in high-risk sectors – or those with poor claims history – deductibles are rising and capacity is tightening.
Worker-to-worker injury claims remain a major cost driver, with average claims in excess of $300,000. PFAS and silica exposures are also on the radar, as insurers price for emerging environmental liabilities.
Despite the softened pricing environment and surplus capacity, insurers are urging developers, builders and brokers to take nothing for granted.
“Increased scrutiny is the trade-off for a competitive market,” the report concludes. Early engagement, thorough underwriting information, and documented risk control measures are now table stakes – particularly for high-value or high-risk projects.
With Australia entering what appears to be a golden decade for infrastructure and tech-driven construction, the outlook is upbeat – but only for those ready to meet risk with rigour.
