The project insurance option in infrastructure procurement

Abstract

Purpose

Project insurance is designed to get over the perceived deficiencies of the conventional insurance practice. It involves the entire project supply chain being insured under a single policy taken out by the project owner. The purpose of this article is to report the outcomes of a study aimed at developing understanding of project insurance practice and how it compares with the conventional system.

Design/methodology/approach

The study consisted of a questionnaire survey across four sectors of the construction industry.

Findings

Direct experience of project insurance is still very patchy. They also raise doubt whether project insurance offers significant benefits to the supply chain members with direct responsibility for designing or executing projects. The main advantages of project insurance over the traditional fragmented insurance products reported by respondents were: avoidance of litigation to determine which member of the project supply chain should ultimately be liable when loss or damage occurs; the ability to obtain cover for projects too large for the insurance capacity of some members of the supply chain; ability of the project owner to purchase customised cover.

Research limitations/implications

The disadvantages were: there is duplication from contractors, sub‐contractor and designers still having to purchase the traditional products for projects on which project insurance is not implemented; the levels of excess in the available project insurance products are too high; there is little reduction in the annual insurance premium bills of contractors, sub‐contractors and designers.

Practical implications

Universities and other educational institutions can contribute to developing wider awareness by including project insurance in not only their educational curricula but also their research priorities. The UK Government's decision to implement project insurance on some demonstration projects is a step in the right direction but needs to involve the research community who are better able to distil the experience for dissemination to the wider industry. The insurance industry needs to play a more proactive role by reassessing the levels of excesses in their project insurance policies and collaborating with the research community to develop more detailed knowledge of the technique.

Originality/value

This is the only reported empirical study into the use of project insurance in the UK construction industry.

Citation

Ndekugri, I., Daeche, H. and Zhou, D. (2013), "The project insurance option in infrastructure procurement", Engineering, Construction and Architectural Management, Vol. 20 No. 3, pp. 267-289. https://doi.org/10.1108/09699981311324005