GEORGE DAVIS Every construction project is unique and has its own set of risks
Owing to insurance playing a vital role in the ultimate success of a construction project, insurance provider Risk Benefit Solutions (RBS) says contractors and engineers need to ensure that a contract includes the contractor all risk policy, which includes cover against damage and any liabilities related to the project activities, as well as the equipment and material.
The contractors all risk policy, RBS notes, is a single insurance policy which is put together by the broker by choosing from a number of different components that insurers have available, such as fire risk, storm damage, theft and third-party liability.
For example, RBS explains that it is common for construction contracts to stipulate that the care of the works, including the risk of physical loss or damage, is solely the responsibility of the contractor. As a result, the contractor will need to have the broadest possible form of cover in place.
RBS explains that it is essential to be prepared, understand the risks and to manage the threats to a project’s success.
“This is where insurance of the project becomes a critical element in the risk management process. The insurance of any project is so important, in fact, that the ultimate successful delivery of the project could solely depend on the insurance contract in place,” says RBS insurance engineering and construction head George Davis.
He notes that, every construction project is unique and has its own set of risks, and it is therefore important to consult with a broker who can take the circumstances of each project into consideration when applying for a policy with an insurance company.
A construction insurance broker is deemed to be a specialist with a particular set of skills and knowledge. Experience from working with a multitude of construction risks brings to bear a unique function within the insurance broking market, they typically have a postgraduate degree or some form of experience in the construction industry and are licenced through the Financial Advisory and Intermediary Services, known as FAIS, Act by examination to act as a financial adviser.
This specific skill set allows the contractor or engineer to be confident in receiving advice from an alternative source who understands the insurance clauses and makes sure the risks are adequately considered and insured.
“Specialist advisers and insurers are able to immediately recognise changes in associated risks, and contractors and developers are able to rely on their technical and professional expertise regarding complex insurance requirements.”
Technical and professional expertise is especially important, Davis explains, as contractors and engineers may not have adequate legal experience and often rely on the good nature of a handshake to conduct business.
“Unfortunately, at the time of a loss, disputes can arise between the parties for a number of reasons. A construction contract is a document to eliminate these disputes, but the terms of contract are open to interpretation and as such it is not a fool proof loss mitigation document. It is intended to limit, transfer or exclude liability and manage the risk,” he notes.
Insurance for works and liability is not a statutory legal requirement, he concludes, and as such, it is deemed to be a purchase to transfer specific risks to an insurer by way of a premium payment in return for an insurance policy.
“Insurance in its essence is a source of finance to pay for losses, if and when the losses occur. It represents the monetary interest the loss presents.”