Management Consulting
Aon
Full Credential Description
In 2023, a Texas-based general contractor faced significant challenges due to extreme heat, which idled many of its projects. The contractor had anticipated some delays due to expected heat spells but was increasingly concerned about prolonged extreme heat scenarios that could lead to further delays and cost overruns. Traditional insurance options did not adequately address the unique risks associated with extreme heat exposure, prompting the contractor to seek a more innovative solution for risk transfer as another hot summer approached. To address these challenges, the contractor's broker recommended a parametric insurance solution specifically designed for extreme heat. This coverage was structured to provide a payout if the number of days with extreme heat exceeded a pre-agreed threshold, clearly defined in the policy. The financial support from this parametric insurance would allow the contractor to manage economic losses resulting from heat-related delays, including covering overtime pay to keep projects on schedule, providing additional financial support to workers, and mitigating contract penalties associated with delays. The implementation of this parametric insurance not only reduced the contractor's contingencies in contract pricing but also facilitated access to capital, ensuring that the contractor could meet operational needs despite the adverse weather conditions. This proactive approach to risk management allowed the contractor to maintain productivity and safeguard worker wellbeing, ultimately enhancing resilience against the escalating risks posed by extreme heat in the construction industry.