Construction Insurance and Risk Management: why is the insurer one of the corner-stones of complex projects?
The parties at stake in a construction project form a complex ecosystem indeed! From a developer and lender point of view, project safeguards and financial security are fundamental to obtaining investment. Insurance companies act both as large investors and as risk transfer partners during the complex construction phase of a new project.
In line with these needs, the range of insurance products has never been so wide or indeed affordable. Along with a programme of proactive risk management, they form a powerful tool in reducing the risk to both the insured and the insurer.
Insurance cover for Construction projects: what does it protect?
Whether it’s a new construction, conversion or renovation, the main reason why insurance policies are sought in a construction project is to comply with the insurance requirements of the contract. In that view, the cover is usually taken in the joint names of the contractor and the principal.
It covers the construction project during the entire construction phase, and also during testing and after the handover, specific guarantees keep operating during the maintenance period. ‘All risks’ of material damage are embedded in these tailor-made policies for the construction industry: fire of course, but also natural events (flood, storm, earthquake, etc.), accidents during testing and commissioning, and even handling mistakes or faults in erection. In fact, 80% of losses originate from a human error!
But material damage is not the only risk that contractors and principals face. In particular, during construction, events for which the contractor or the principal is liable can happen quickly. For that reason, construction policies also cover third party liability arising from damage to third party property or even bodily injury, occurring in direct connection with the construction works. On top of that, each project is different and dedicated covers are available case by case: covering the plant and equipment on site, the existing property of the principal, delay in start-up consecutive to a loss, specific interests of lenders and financing parties, project cargo for parts being transported on the construction site, temporary storage, or even the workmen compensation needed by the employer. At AXA, we offer a construction package, which covers and protects the needs of the relevant stakeholders, identified for each contract with the project team.
It is also worth focusing on ‘Delay in Start-Up’, also referred to as Advanced Loss of Profit (ALOP). In essence, the ALOP element covers clients against lost revenue following a physical loss under a construction policy. This financial security, although it is an optional cover which comes with a certain cost, is viewed as a very strong security, in particular by financing parties.
Proactive Risk Management: the Insurer by the engineers’ side to advise and help prevent incidents
Most insurance companies now provide risk engineering advice on best practices in health and safety on site, adherence to engineering standards, and/or compliance with applicable standards and regulations related to the protection of construction sites.
Risk engineers can provide auditing and testing of project risk management as well as support customers who require an independent organization to oversee contractors from a risk management perspective.
This can range from a small house building contract to some of the largest and most complex construction and engineering projects across the globe.
Risk engineers are highly specialised in construction projects, and have generally been involved within the construction industry with experience in all aspects of Construction Risk Management.
Risk management services provide support and advice at every stage of a building’s life cycle. It can support those involved from the conception stage of a construction project and throughout its occupation and can play a key role in the risk management of the project.
Unlike other insurers, we at AXA do not outsource our risk management services. We have approximately 160 specialist risk engineers located worldwide and carry out all risk survey site inspections including power plants, industrial building as well as high rise residential building.
Focus on Health and Safety
The construction industry can be a dangerous place to work, creating many health and safety challenges. This is why we think it is essential to work with a dedicated risk management team who have the expertise to advise on the best ways to mitigate risk during the construction process and beyond as the building is occupied.
AXA Risk Engineers can provide:
- The skills in-house to provide support during the initial discussion with the design team
- Surveys for contract works, whether it’s a one-off project, a large phased construction project or a PFI contract
- Experts who can give advice on problematic aspects of any building
- Visits to site to suit customer requirements during the building phase as the site changes and the risks evolve
- Third Party audits against Joint Code of Practice requirements
- Advice on Modern Methods of Construction (MMC) and BREEAM (the leading design and assessment method for sustainable buildings). Methods of construction may be new to certain clients, but there’s every chance that we have experience of that method and can give appropriate advice
- Advise on security if we know that a site will become vulnerable. We work with our partners to provide specialist temporary high-security steel screens, alarm systems and round-the-clock monitoring with an emergency call-out service.