A £450 million upgrade to the electricity network in the north of Scotland is set to replace outdated infrastructure.
According to the BBC, “The investment will see the existing network of wooden poles and overhead lines upgraded, substations updated, and improvements to the underground network.”
Such large-scale infrastructure projects pose distinct challenges for insurance brokers.
Michael Twena (pictured), director, broking, for GB Construction at Willis believes these projects require a deep understanding of the risks involved, including how to accurately declare project values in today’s volatile economic climate.
Twena explained: “Inflationary pressures on project costing make accurately declaring values more challenging. In view of current market volatility, with tariffs imposed, the estimation of contingencies and how these are factored into declared values will be an important metric at the project outset…
“During COVID we experienced high inflation – this resulted in project value adjustments, and this should be a consideration for today’s infrastructure-based projects.”
Large-scale infrastructure work is fraught with complex risks that need to be addressed upfront.
One major concern is contractor insolvency.
“With increasing numbers of contractors facing insolvency, the importance of an Owner-Controlled Insurance Programme (OCIP) is increasingly more relevant,” says Twena.
To reduce exposure, Twena recommends rigorous screening: “Contractor screening and selection should be risk-based and include financial security and experience.”
Another pressing concern is the availability of skilled labour.
Many related projects within the same region compete for the same resource base. This can lead to difficulties. Twena explained: “Multiple related projects, particularly in the same region, can often compete for a similar resource base… this can result in key skills shortages, resulting in project delays that can have a consequential impact on upstream or downstream projects.”
In such cases, Delay in Start-Up (DSU) insurance may be a useful tool as it can help when “incurring higher costs for skilled labour following an indemnifiable event in order to minimise the delay occurred to the project,” said Twena.
Twena also stresses the importance of proactive planning and communication: “Controls and management of project interfaces is a key area of focus in this sector. Responsibility for management of these interfaces should be assigned and interfaces reviewed by the project management team on a regular basis.”
To mitigate risks, brokers must recommend comprehensive, all-risk insurance coverage.
Twena explained: “Construction insurance policies are based on all-risk coverage, including the following perils: flood, escape of water, faulty workmanship, fire, nat cat exposures, vandalism, and theft.
“The policy could also include third-party liability (TPL) and non-negligent liability (NNL), providing assurance to the employer that, in the event of injury or damage to third-party property as a result of the works, the policy would look to respond,” he added.
Brokers should also consider off-site exposures and connected liabilities: “Policy coverage can also include off-site fabrication, construction, and storage, as well as extensions for suppliers, customers, utilities, and denial of access. Other interfaced coverages that would be relevant to these projects include employers’, public and environmental liability, and cyber covers.”
Twena also highlighted the need for appropriate defects cover: “The level of defects cover will depend on many factors, including the type of technology, construction methods and materials, and experience level of the contractor/developer,” he said.
For complex risks, Twena recommends alternative solutions: “A design error resulting in no physical event but requiring the equipment to be remanufactured would not be generally covered in an ‘all risk’ policy. However, cover could potentially be arranged through alternative risk transfer.”
Twena suggests brokers should consider "sufficient levels of professional indemnity cover" too, or the option of "owner-controlled professional indemnity cover," which could cover all parties.
According to Twena, effective broker support is continuous: “Provide risk management support from prior to policy inception all the way through to completion, allowing a smooth transfer to operational coverage.
“Support initially includes gathering information to further our understanding of the project, understanding specific exposures to the client, and their mitigation strategies, providing guidance and input where required.”
By engaging in this way, brokers can produce stronger outcomes: “This allows us to develop a technically balanced underwriting submission, allowing optimal market placement,” said Twena.
Once the policy is in place, brokers should also continue their support. “Following placement….offer support that often includes tracking project progress – identifying and discussing important observations that could potentially impact project values, duration, material changes, as well as identifying project management performance,” said Twena.
Twena also recommends providing interactive, client-specific support: “manage and provide support to clients as part of lead Insurer engineering visits…. [this approach] includes the ability to arrange workshops to either provide an introduction to construction risk management and or to drill down in any key areas. These are designed to be interactive, allowing engagement based on specific project interests.”
