Challenges for the construction insurance industry for 2025
Dec 22, 2024
מאת: איציק סימון
2025 כבר כאן וזה זמן מצוין למאמר השנתי שלנו שמנסה (ובדרך כלל גם מצליח) להתחקות אחר אתגרים מרכזיים שעומדים בפני ענף ביטוחי הבנייה בבוא השנה האזרחית החדשה.
הפעם ננסה, מן הסתם, לנתח את האפקט של סיום (או לכל הפחות ירידת עצימות) המלחמה בהקשר של ההשלכות על ענף הבניין בכלל ועל תחום ביטוחי הבנייה בפרט.
By: Itzick Simon
2025 is here and it's a great time for our annual article that attempts (and usually succeeds) to trace key challenges facing the construction insurance industry as the new calendar year approaches.
This time we will probably try to analyze the effect of the end (or at least the decrease in intensity) of the war in the context of the implications for the construction industry in general and the construction insurance sector in particular.
First (National) Challenge - Rebuilding the North and the South
The first and clear challenge facing the construction industry in Israel in 2025 is the project of restoring buildings and homes in the north, south, and center of the country. Thousands of buildings have been damaged to one degree or another, many of which require demolition and rebuilding.
The media even publishes ambitious plans that say the state wants to turn lemons into lemonade, through rehabilitation programs that will not only restore the situation to its former state but will also be a gateway to growth.
Regarding the Northern District, for example, it was announced that the state plans to build almost twice as many housing units, launch "discounted apartment" projects, subsidize urban renewal, renovate public shelters, subsidize the establishment of emergency shelters in communities up to 9 km from the border, and more.
The same is true for the south. As part of the rehabilitation and development plan for the communities around Gaza, the Reconstruction Administration approved dozens of rehabilitation plans last November. Among the communities included in the approved plans: Yad Mordechai, Shadi Avraham, Dekel, Kerem Shalom, Gver'am, Zikim, Ein HaBsor, Nahal Oz, Nirim, Sa'ad, Re'im, Or Haner, Yesha, Ein Hashlosha, Yabul, Nir Am, Erez and Gavim.
In some places, rehabilitation work has already begun on the ground. At the same time, the administration is enabling urgent and necessary work to be carried out in the communities that are in progress, with funding as needed. The implementation of the plans is supposed to be done independently by the communities themselves, led by the community leadership and in cooperation with the residents.
האתגר הראשון והברור שרובץ לפתחו של ענף הבנייה בישראל ב-2025 הוא הפרויקט של שיקום המבנים והבתים בצפון, בדרום ובמרכז הארץ. אלפי מבנים שניזוקו ברמה כזו או אחרת, אשר רבים מהם מחייבים הריסה ובנייה מחדש.
בערוצי התקשורת מתפרסמות אפילו תוכניות שאפתניות שמספרות על כך שהמדינה רוצה להפוך את הלימונים ללימונדה, על ידי תוכניות שיקום שלא רק ישיבו את המצב לקדמותו אלא יהיו פתח לזינוק.
לגבי המחוז הצפוני, למשל, פורסם שהמדינה מתכננת להקים כמעט פי שניים יחידות דיור, להשיק מיזמים של "דירות בהנחה", לסבסד התחדשות עירונית, לשפץ מקלטים ציבוריים, לסבסד הקמת ממ"דים ביישובים עד 9 ק"מ מהגבול ועוד.
הדברים נכונים גם לדרום. כחלק מתוכנית השיקום והפיתוח של יישובי עוטף עזה, מינהלת תקומה אישרה בנובמבר האחרון עשרות תוכניות שיקום. בין היישובים שנכללים בתוכניות שאושרו: יד מרדכי, שדי אברהם, דקל, כרם שלום, גברעם, זיקים, עין הבשור, נחל עוז, נירים, סעד, רעים, אור הנר, ישע, עין השלושה, יבול, ניר עם, ארז וגבים.
בחלק מהמקומות כבר החלו עבודות שיקום בשטח. במקביל המינהלת מאפשרת ביצוע עבודות דחופות והכרחיות ביישובים שנמצאים בתהליך, במימון על פי הצורך. יישום התוכניות אמור להיעשות באופן עצמאי על ידי היישובים עצמם, בהובלת הנהגת היישוב ובשיתוף התושבים.
For some, these hopes remind them of famous cases from the past. For example, the city of San Francisco was hit in 1906 by an earthquake measuring 7.9 on the Richter scale, which destroyed about 80% of the city and claimed about 3,000 victims. The California government seized the opportunity, rebuilt San Francisco in a different style, and turned it into the largest vital center on the West Coast. As then-mayor Eugene Schmidt said: “The phoenix may be a mythical creature, but San Francisco has proven that it is possible to rise from the ashes to greatness.”
The challenge of reconstruction is going to create a burden on the construction industry. Especially in light of the plans to build more and beyond the previous situation. This situation meets the industry while it is still licking its wounds. From the shortage of manpower due to the failure of Palestinian workers to arrive at the construction sites (see below) to the difficulties and creaking in the supply chains.
It is also impossible not to mention the Turkish boycott following the fighting in Gaza, which created significant crises for the Israeli economy. Turkey, which served as a major destination for importing goods to Israel and was the fourth largest in terms of trade volume, exported products worth approximately $5.27 billion to Israel in 2023, including materials such as metals, machinery, minerals, and agricultural products.
The sudden cessation of trade caused a shortage of raw materials, especially in the construction sector, and prompted an urgent search for alternative sources, which increased the risk of price increases and damage to the pace of implementation. Even today, there is still concern that the Turkish boycott will trigger a similar wave from other countries, which will deepen the economic damage to Israel.
Will Kiryat Shmona become San Francisco?
When it comes to construction insurance for building renovation projects, there may be gaps in the lines of responsibility between property tax and insurance companies. For example, who is responsible for insuring the renovation and what happens if damage occurs that was not properly considered in the insurance survey. This is not idle talk. A case study recently handled by our agency was a building in the north of the country that was damaged and needed extensive renovation. An engineering surveyor who arrived on site raised concerns that the structure was unstable and that restoring the ceiling could cause walls to collapse and further damage.
The question was rightly asked, who would be responsible for compensating in such a case? Is it the property tax that has completed its assessment or perhaps the insurance company, since this is already a "regular" construction site. In short, the issue of renovating buildings after the war raises more ambiguous questions regarding insurance for projects, and the example we have given here is a case of a little holding the many together.
The insurance point:
Almost every year we mention the gaps in Israel's preparedness for an earthquake scenario. An event that is not a question of "if" but "when." Now, at the beginning of 2025, it seems that things are connecting with additional aspects - security and national.
Strengthening buildings against earthquakes in Israel is an integral part of the Israeli security concept, in that new construction is more protected, more stable, and also includes protected residential spaces (PDS). The millions of Israelis who, with their neighbors and/or co-workers, ran to public shelters, stairwells, or "indoor" spaces in response to the alarms, felt the grim statistics of the lack of protection firsthand.
The construction industry will have to be available in 2025 with large-scale urban renewal projects. Including the continuation of the trend of large-scale projects in the form of evacuation and construction that replace the specific solutions of reinforcement according to TAMA 38.
Second challenge: The State of Israel's preparation for earthquakes and the need for protection
The insurance point: Insuring urban renewal projects is no small matter. Insurance companies, following the changes that have occurred in the field in recent years, do not always provide a complete and comprehensive solution for contractor work insurance for projects of this type. Insurers often view these projects as high-risk projects due to the work in the heart of a dense urban area, the proximity to additional buildings, excavation under existing buildings, proximity to schools or kindergartens, and more.
The paradox is that the ones who will bear most of the burden in an earthquake are the insurance companies. In the event of an earthquake, the insurance companies will be the first to "pay the price" for the damage to life and property.
The insurance point:
The third challenge for the construction industry in 2025 is, of course, the manpower challenge, or rather, the lack of manpower. The industry, which relied on about 100,000 Palestinian workers on the eve of the war, is now required to find other solutions. It is likely that even if Palestinians return to the industry in the coming months, we will not see them visiting the sites in the numbers we are used to.
The construction industry will be required to adapt to working with foreign workers, and of course also working with manpower corporations, with all the complexity that this entails.
The costs of employing foreign workers will affect construction costs and become an additional burden on the struggle against the cost of living in Israel. As of 2024, the average monthly wage of Chinese workers in the construction industry is 14,196 NIS, while the daily wage of Palestinian workers ranges from only 100 to 300 NIS, an amount that adds up to approximately 2,000 to 6,000 NIS per month, based on 20 working days per month.
To all of this must be added the significant danger of employing illegal Palestinian workers, an employment that is both a criminal offense and may amount to liability for a terrorist incident.
Third challenge: You have a business here with construction workers
In terms of insurance, two significant challenges can be expected in the context of human resources. First, the fear of the temptation to employ Palestinian workers illegally, creating a real danger of both terrorist incidents and difficulties in covering incident controls. Second, the costs of employing foreign workers may affect the scope of compensation for victims of work accidents, since the significant heads of damage in these claims are derived from wages. For example, if a foreign worker is killed, God forbid, in a work accident, the amount of compensation that will be paid to his family members is many times higher than the amount of compensation that would have been paid to that same worker if he had been Palestinian. This increase in compensation amounts may damage the already challenging relationship between reinsurers abroad and insurance companies in Israel in the field of construction insurance. Especially if you add the risk of subrogation claims by the National Insurance Institute against the insurance company, after paying compensation to the injured party and/or his family members.
The insurance point:
מסמכים
