INSIGHT | RISK & INSURANCE
THE INSURERS’ ROLE IN PROJECT RISK MANAGEMENT
Heiko Wannick, Richard Krammer, and Philip Sander review current practice of seeking insurance cover for projects, highlight potential benefits from earlier involvement of insurers, and propose a pilot initiative
In its recently published paper ‘Recommendations for Project Risk Management in Underground Construction’1
, the German Committee for Tunnelling
(DAUB) has explicitly named the insurer as an important stakeholder in underground projects. The role and responsibilities of the insurer are clearly described there. It is recommended that the client puts together the insurance package at an early stage, based on the project-specific risk analysis and taking into account the technical and contractual framework conditions. In reality, however, the procurement of project
insurance takes place at a rather late stage, usually prior to the tender stage or even afterwards. This significantly limits the insurer’s ability to get involved in the project risk management concept. This could have major implications on the amount of the insurance premiums and/or lead to limited insurance cover. The willingness to offer innovative insurance solutions for the project may equally be limited as a result. This article describes the current practice of how
project insurance policies have generally been procured to date. It highlights the potential benefits of involving insurers earlier than has been the practice previously. It also explains the requirements for such an earlier involvement. The article proposes a way forward with a pilot case to verify the expected results.
THE STATUS QUO For most construction projects, a number of project insurances are taken out either by the owner or by the construction companies (see Figure 1). In addition to pure property damage cover, such as Contractors’ All Risks insurance (CAR) or Contractors’ Plant and Machinery insurance (CPM), these also include a whole range of liability coverages. Third Party Liability (TPL) and Professional Indemnity (PI) are of particular importance here, as the frequency and intensity of claims in these areas is particularly high. The typical process is that the future policyholder
usually commissions an insurance broker to procure project insurances. The broker compiles the risk information available up
to that point, creates a risk profile, selects suitable policy wordings and then, ideally, presents the project to the potential project insurers. The insurers analyze the available information and
prepare a binding quotation by an agreed date. If the technical capability is comparable, the bidding insurer who submits the most attractively priced offer is usually awarded the contract as the leading insurer (the Lead). Based on the agreed conditions of the Lead, the broker
then appoints the necessary number of co-insurers until the risk is 100% placed.
Property damage insurance Right, figure 1:
Typical project insurances SOURCE: HEIKO WANNICK
Contractors’ all risks Contractors’ plant & machinery Marine cargo (transportation) Delay in start-up
Liability insurance Selection of Project insurances
typically procured for Major Infrastructure Projects
Third party liability Environmental liability Professional indemnity Workmen’s compensation
26 | Summer 2023
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