RISK & INSURANCE | INSIGHT
Left, figure 2:
Example of a major loss in tunnel construction: TBM damaged and trapped after a rock collapse SOURCE: PHILIP SANDER
If the project insurances are arranged by the Owner
for all parties involved in the project, this usually takes place after completion of the planning phase before the construction contracts are tendered. In the case of ‘Build-only’ contracts, at least the
main construction methods, the planned construction schedule and the Client’s budget are known at this point. If it is a ‘Design & Build’ project, only a conceptual
design is provided by the Client as a basis for the insurance offer. Essential construction parameters, such as the actual construction methods chosen, the construction schedule and the price structure, are defined by the bidding contractors and are not known at all or only partially known to potential insurers at the time of insurance procurement. This form of contract is especially critical in
underground projects where the contracted construction companies are expected to assume the full ground risk, although only a rough ground investigation program was provided by the Client at the time of tendering. Under such conditions, many potential project insurers tend to act conservatively and include factors to account for this uncertainty, which in turn can impact the insurance premium, the level of deductibles and the scope of cover. Particularly risky forms of cover, such as the ‘Delay-in-Start-Up’ (DSU) insurance, which are often prerequisites for privately financed projects, are difficult or even impossible to obtain under these circumstances. During the insured construction period, the
possibilities for project insurers to get involved in the risk management process are limited. Risk monitoring is usually reduced to more or less regular site inspections. During these inspections, the Lead insurer’s risk
engineers obtain information about the construction progress, the current and future risk profile and the situation on the construction site. If recommendations for risk improvement are made at the end of the inspection, they are usually non-binding. An assessment can also be provided on possible lack
of compliance with any insurance policy conditions, for example with regards to flooding or fire-fighting clauses.
Ultimately, insurers are not directly involved in the
risk management concept implemented in the project. Nevertheless, the insurance industry has made some valuable contributions to improving the risk quality of underground construction projects over the last two decades, e.g., with the introduction of the ‘Joint Code of Practice for Risk Management of Tunnel Works’.2
EARLIER INSURER INVOLVEMENT – REQUIREMENTS AND ADVANTAGES The purpose of project insurance has been established for decades. In the event of sudden and unforeseen accidental events (see Figure 2), it essentially provides compensation for personal injury and financial loss to third parties as well as for property damage to the insured construction work. For this purpose, it was previously sufficient to take out a corresponding insurance package at the most favorable conditions possible at a comparatively late stage of project planning or shortly before the start of construction. However, the question arises under which
circumstances an earlier and more active involvement of the project insurer would make sense and what advantages this would have for the project participants. The considerations outlined below primarily concern
large-scale projects that are either implemented by an experienced public project owner or individual privately financed projects (PPP) where lenders have a strong influence on project planning and execution. Ideally, these types of projects should be implemented using the so-called Integrated Project Delivery concept (IPD). Usually, cost, schedule and risk for a project are
determined separately. But they are interdependent and influence each other (see Figure 3). A probabilistic model that considers these factors,
including their uncertainties, correlations and dependencies, in an integrated manner can depict and predict project outcomes far more realistically.3 It is therefore ideal for use in IPD-based projects, as it creates the incentive for project implementation in partnership, with the aim of a fair pain/gain distribution between all stakeholders.
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