Aon sees Australian construction growth driven by defence

Aon has published its 2026 Global Construction Insurance and Surety Market Report, which identifies residential building, defence investment and data centre development as key drivers of construction growth in Australia.

The report says the Australian market entered the year with strong activity, supported by housing demand, government-backed defence work and investment in digital infrastructure. At the same time, labour shortages, rising input costs and more complex projects are emerging as major constraints on delivery.

It places Australia within a broader Asia-Pacific trend of sustained construction activity across infrastructure, energy transition projects and digital assets. Across the region, projects are growing in size and complexity, increasing exposure to delays and governance risks.

"Asia Pacific continues to be one of the most active regions for construction," said Terence Williams, Head of Commercial Risk for Asia Pacific at Aon.

"Hyperscale data centres, battery and semiconductor plants are driving demand for higher-value, more complex builds with extended timelines and greater delay exposure. Insurers are placing greater focus on how projects are governed and how data informs risk decisions," Williams said.

Insurers are drawing sharper distinctions between projects based on governance standards, the quality of risk information and how exposures are managed throughout a build. That reflects the scale of developments under way in parts of the region, particularly in sectors tied to technology and industrial policy.

Workforce strain

In Australia, labour availability stands out as a central concern. The construction pipeline remains strong, but the sector faces growing pressure to source enough skilled workers for major infrastructure, specialist trades and professional roles.

Preparations for the Brisbane 2032 Olympic and Paralympic Games are expected to add to that strain in Southeast Queensland. Transport projects, venues, accommodation and urban renewal schemes are likely to compete for workers in an already tight market.

"Australia's construction pipeline remains strong across residential, defence and technology-related projects, but labour availability is a real pressure point," said Mary-Catherine Hamill, Head of Construction for Australia at Aon.

"In the lead-up to the Brisbane Olympics, competition for skilled workers is expected to intensify across major infrastructure, specialist trades and professional roles, increasing cost pressure and the risk of project delays," Hamill said.

Insurers in Australia are paying closer attention to how companies manage workforce shortages, labour cost inflation and longer project timelines. Those issues affect claims risk, delay exposure and the terms available for insurance on large, more complex developments.

Regulatory focus

Another issue flagged is regulatory change in New South Wales. Proposed updates to the Design and Building Practitioners Act 2020 are expected to widen regulation to cover repair, alteration and renovation work on existing Class 3 and 9c buildings. They could also introduce professional indemnity insurance requirements for building practitioners.

The final shape of the changes remains subject to legislative outcomes, but they are likely to increase scrutiny of whether builders have suitable insurance arrangements and risk frameworks in place. For developers, contractors and consultants, that could mean extra compliance work at a time when projects are already under cost and labour pressure.

Surety demand

The report also points to rising demand for surety bonds in Australia. Contractors facing higher material, fuel and supply chain costs are increasingly using surety as an alternative to bank guarantees to release capital tied up in projects.

The trend reflects pressure on company balance sheets as project values rise and costs remain elevated. In sectors such as infrastructure and defence, where contract sizes can be large and financing demands significant, access to surety can shape how firms manage liquidity.

"With project values increasing and supply chain costs remaining elevated, contractors are looking for ways to preserve liquidity," Hamill said.

"Surety is playing a larger role in Australia as businesses seek to unlock working capital without constraining bank facilities, particularly on large infrastructure and defence projects," she said.

Insurance market

Despite the operational strains outlined in the report, insurance capacity in Australia remains available for well-managed risks. Aon points to strong local participation and greater appetite from London insurers, supporting competitive terms for lower-risk projects.

The report adds that insurers view technology and defence-related construction favourably, including data centres and advanced manufacturing facilities. That reflects the investment flowing into critical infrastructure and national security-related sectors, even as insurers take a closer look at governance, staffing and programme management.

The study examines trends across construction property insurance, professional liability, casualty insurance and surety, with a focus on pricing, capacity and insurer appetite in global, regional and local markets.