Awash with more transportation projects than any other region worldwide, Asian infrastructure is undergoing a construction boom. Yet underneath most, if not all, projects, considerable risks loom, which if ignored can result in severe financial losses.
No other region in the world comes close to Asia in terms of infrastructure investment. Whether the building of new roads, railways, bridges, tunnels, ports or airports, the region is awash with projects, many of them bigger than those that preceded them. There is also a flurry of upgrading projects as well.
The amount of dollars being spent on Asia infrastructure dwarfs that of other regions. Collectively, the continent accounts for 58% of global infrastructure development, with US$46 trillion currently invested, according to the G20. The rest of the world has invested US$33 trillion, demonstrating just how far ahead of the pack Asia is.
Indeed, the continent is ambitious. The Asia Development Bank reports that some US$43 trillion is needed to fund Asia’s future infrastructure plans between 2020 and 2035, fuelled mostly by the desire of Asian governments to grow their respective economies via domestic and international trade, which needs a variety of transportation systems and networks to move goods and people from place to place.
New developments are disrupting conventional approaches to building and operating transportation infrastructure, in particular.
On one hand, novel technologies, greener materials, greater electrification, and increasingly sophisticated designs are making these more sustainable, more efficient, and potentially more resilient — while enabling journeys that were once unthinkable a reality. Yet on the other hand, climate change and an increase in extreme weather events, cyber risks, and tight budgets that lead to less robust constructs, among others, are creating new risks that can impact the functionality of these assets.
How are today’s risks impacting the construction and managing of transportation assets, and what can developers and operators do to mitigate their impact?
Flooding, landslides and earthquakes: major impediments for roads and rail
Extension of Asia’s road and rail network is notably moving at pace. This decade should see an additional 29 million miles of road built, while high-speed rail will add a further 70,000 kilometres (km) to its network. Flooding and landslides caused by heavy rain continue to cause most concern to constructors and operators. When building roads and railways, construction should take place in batches, especially when building over long distances of say 100 km or more, otherwise there is a risk that the entire project will become flooded or experience landslides en masse. Hence why many insurers will typically apply ‘section limits’.
Industrial zones across the region are becoming better prepared for flooding. However, some still haven’t gotten their designs right. Learning from the floods that severely disrupted Thailand’s industrial base in 2011, many facilities and zones now have in place walls to protect them against flooding. However, these walls are only as good as other measures, such as watertight gates that can be erected swiftly, or appropriate drainage that prevents floodwater from entering premises via such piping. Flooding can also be a major issue for privately run toll ways that connect cities and industrial zones. Not only does it prevent transportation using these roads, it also denies operators who run these toll ways of income.
Earthquakes are also a major cause of concern for bridge builders and operators, and can also lead to landslides. Fortunately, building standards for rail and roads in places susceptible to earthquakes like Japan and Taiwan are among the most robust worldwide, as they are for extreme weather. But that doesn’t make them completely vulnerable to failure. Typically, when risk incidents occur, it is the result of human error, whether defective workmanship, a lack of testing, cost cutting or bad judgement. Recent cases of electrical malfunction, decoupling and power outages on Asia’s railways for instance, have been attributed to human fault. As such, QBE prefers to support rail projects that run autonomously, like Singapore’s mass rapid transit (MRT).
Mass concentration of exposures: ports and airports
The continent’s ports, too, are expanding. Of the world’s largest ports in 2023 in terms of the number of container units passing through them, 15 are located in Asia, with many of them seeing robust year-on-year growth. Busier ports and the waterways that surround them have made them more susceptible to incidents. The past year or so has seen at-sea collisions in the Taiwan Strait, Yangtze River, and Singapore Strait, among others. We’ve also seen ships collide with one another within ports, like a recent incident in Hong Kong, as well as ships crashing into port cranes in Taiwan and Turkey. The latter can be particularly troublesome for ports. Not only are such incidents highly disruptive, the cost of repair can be in the millions of dollars per crane as well, not to mention business interruption. Some incidents might release contents which are very harmful to the environment and will require extensive clean-up activities.
Use of automated vehicles and machinery pose their own threats to port operations including worker health and safety, particularly if poorly programmed. Should they falter technically, or be deployed at facilities unsuitable for their usage, the likelihood of an incident will be high. Port operators must also show concern for the storage of hazardous materials. Whether the warehousing of toxic chemicals or storage of flammable materials, ports must ensure they have the appropriate facilities to store these goods. Equally, they must be wary that finished goods like electric vehicles also pose a fire hazard due to batteries and charging activities and make contingency plans for such an event.
A further consideration for ports is the use of reclaimed land. Typically, such land should lay idle for around 20 years. However, some developers are commencing construction within a mere few years after being reclaimed, or even earlier. Such practices significantly increase the risk of subsidence, flooding, and movement of piles impacting foundations. It’s not just ports that are being built somewhat hastily on reclaimed land, some airports have been built too soon in such places, like Japan’s Kansai International Airport.
Airports usually feature an enormous concentration of risk exposures in one place, including being built on reclaimed land in many destinations. Often there are train services to cities and other places of interest; there are shopping malls; and there are automated facilities that carry bags, people and cargo from one point to another. All of which can present a wide variety of risks to passengers and workers should one or more of these falter.
Key considerations for better managing risk
Across the different types of transportation assets, builders and operators should adhere to some simple rules that will help better manage risks. For project developers and others involved in the building of projects, it is important to follow the highest of building standards and codes regarding design, materials and technology. It is also important that these are the most applicable to a project. All too often, a road or a bridge uses materials that are unsuitable for a particular climate, soil condition and/or structure.
They should also avoid using the cheapest option or take construction short-cuts as both usually compromise the integrity of projects. Builders must also avoid rushing projects, as typically such action will lead to a risk incident in future. Risk registers, which detail all the possible risks to a project, should be diligently created, reviewed and each risk addressed. These should be shared with brokers and insurers for their input and feedback, optimising the experiences of all stakeholders to a project.
Operators of projects must continually test and monitor the performance and integrity of assets. A simple crack in a road or railway bridge, for example, can become a far greater problem if left unattended. Both operators and builders should regularly seek input and advice by seasoned advisors, who can offer ideas and best practices to ensure the integrity of projects. To this end, QBE is working with the International Finance Corporation and its Building Resilience Index to promote building and retrofitting best practices around Asia and beyond, to make cities and transportation infrastructure more resilient.
Going the extra mile
The insurance industry is playing its part too, in helping builders and operators better manage risk. At QBE, we offer a wide range of policies to meet the needs of companies involved in building and managing projects.
Beyond providing insurance coverage, there is a role for underwriters like QBE to support project builders and operators in bolstering their resiliency for the wide range of risks they face. By openly sharing our insights and experiences, we help these companies navigate the many perils they may encounter daily.
Companies that strive to become more resilient are actually rewarded in the insurance process. At QBE, we prioritise companies and projects that exert greater resiliency than their peers, and we also make sure that they take out the right policies and protection for their individual needs. Risk resilience will also offer better protection for people.
To learn more about how we can help your business become more robust and capitalise on resiliency, contact me at youngjun.lee@qbe.com.