COVID-19 and Brexit – Supply chain challenges ahead

As we head into winter, and the end of a second UK lockdown, the focus remains on containing the spread of the coronavirus. Add the uncertainties surrounding Brexit, which will undoubtedly impact on labour resources across the entire construction industry – and, potentially, we could be about to face some significant supply chain issues.

But what if we experience a severe weather event over the next few months? Customers will urgently need our help, and any property repairs must be carried out quickly, properly and safely – but does the insurance industry have the resources to respond? And at what cost?

Sector challenges

COVID-19 has presented its fair share of challenges in the construction and building repair sector. For many firms, activity ceased for several weeks. As restrictions have relaxed, PPE and extensive cleaning requirements, together with the loss in productive time due to COVID-19 restrictions, have led to inevitable cost increases.

Several months on, and many basic materials are still in short supply, particularly those coming in from Europe – 64% of construction materials are imported – driving a trend towards rising costs. UK builders’ merchants have already warned of price increases in Q4 2020 and, as a result of Brexit, material costs will almost certainly rise through tariffs or re-pricing by manufacturers in 2021.

In our quarterly Building Repair Costs Review, we forecast that inflation within the UK insurance repair sector will be around 5-6%, over the next few months and into next year. This is an essential consideration for our insurer clients, as it represents a significant impact on claims costs in the near future.

Build, build, build

Brexit also presents other issues, which could affect labour resources and so repair costs in the months to come. Surveys indicate that between 40% and 50% of the construction labour force in London is migrant, with half coming from the EU – but also countries like India, China and Brazil. What happens to this workforce when Brexit restrictions are introduced?

Many building repairs contractors are very concerned about the future of their workforce. COVID-19 has meant that apprenticeship programmes have stalled – apprentices just can’t be trained. The government’s build, build, build initiative threatens to take labour away from the property repairs sector – and if we’re not smart, they will go.

An article in Construction Manager Magazine [27 April 2020] highlighted that the collapse of Carillion and now the pandemic, have “…exposed the raw edges of the contractor business model in new, ever more palpable ways. The business model must change – urgently. In a post-COVID-19 economy, society needs a healthy and innovative construction sector.”

COVID-19 compliant

The current pandemic has created stop/start repair works programmes, with new health and safety briefings prolonging the process. Forward planning is significantly more critical than ever before – increasing the management time needed in administration and making sure COVID-19 guidelines are adhered to. We estimate that anywhere between 5-15% of contractors’ time is unproductive to the actual job in hand.

COVID-19 has also made everyone more customer-centric and aware. The increased use of video technology – to monitor contractor performance and repairs remotely – saves additional visits and time, but carrying out the work itself has become more complicated. With so many customers working from home, it’s difficult to arrange days when it’s convenient to carry out works to their property. We also have to rigorously check that the contractors will be working in a safe environment – and this places additional pressure on resources.

Supporting contractor networks

Currently, customers are less interested in cash settlements, possibly because it’s not easy to get hold of the right materials, or source local builders who can start within a reasonable timeframe. This has created a real growth in appreciation of the importance of contractor networks in the claims management process.

We’ve supported our network contractors and the supply chain consistently, before and throughout the COVID-19 crisis. Contractors can naturally stretch to accommodate surge, but as contractor managers, we can also shoulder a good deal of the planning and administration on their behalf. We help progress the work and mitigate any challenges, enabling the contractors to concentrate on getting the job done – correctly and within pandemic restrictions.

Rewarding loyalty

We’ve maintained strong working relationships with a very tight team of tried and tested building repair contractors, right across the UK. Encouraging working partnerships of collaboration and inclusion, we generate an environment of faith and trust. We know our contractors will do what they say they’re going to do and they know we’ll provide all the required administrative support and – importantly – prompt payments to assist their cash flow. Today, on average, we’re paying contractors’ bills 25% quicker than two years ago.

Our contractors reward loyalty, and if we’re faced with a severe weather event this winter, we know we can rely on their full support. This could be crucial in the months to come.

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