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José Luis Montull Risks and Insurance policies Risk Management in Civil Engineering – LNEC 19.11.2008.

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Presentation on theme: "José Luis Montull Risks and Insurance policies Risk Management in Civil Engineering – LNEC 19.11.2008."— Presentation transcript:

1 José Luis Montull Risks and Insurance policies Risk Management in Civil Engineering – LNEC

2 2 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Risk and Insurance  Risk: it is not only the contingency or proximity of a damage (hazard), but also each and every contingency that can be subject of an insurance contract (Risk ) the mathematical product of the probability of a damage taking place, multiplied by the consequences of such damage: R = P x C where: P = Probability of an event C = Consequences of that event ¿quantifiable ?

3 3 Risks and Insurance policies Risk Management in Civil Engineering – LNEC  The Insurance is nothing else than a financial transaction by which a party, the policyholder (Insured), through a remuneration (the premium), promises to himself or to a third party a payment or a reparation in case of risk producing damages. The other party (the Insurer) who makes this payment, takes a set of risks, and is able to compensate them according to the statistical laws. Risk and Insurance

4 4 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Risks-Matrix RiskProbabilityIntensity Risk Control Clasification InsurableInsurance Policy Absenteeism and productivity decreaseAlmost sure Moderate Not adequate Extreme No No investment's shortage in I+D, TI, RRHHPossible Severe Not adequate Extreme No No Political inestabilityRare Catastrophic Not adequate High No No Theft of goods or moneyAlmost sure Moderate Not adequate Extreme Yes No Manpower costs explosionProbable Moderate Not adequate Extreme No No Specific sectorial risks: manipulation of materials, stress,..Almost sure Moderate Adequate Extreme Yes Yes Key Executives travelling togetherUnlikely Catastrophic Not adequate High Yes Yes The Risks-Matrix: Major Risks. (Example)

5 5 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Risks Matrix: Major risks. L Low Risk Controlled by skilled workers and surveyors. M Moderate Risk Managed by middle staff. H High Risk General Managers attention is required E Extreme Risk The Board must be informed, and a permanent follow up is required. INTENSITY negligibleLightModerateSevereCatastrophic Almost sure Probable Possible Unlikely Rare M M L L L H M M L L E H H M M E E H H H E E E E H PROBABILITY Risks-Matrix

6 6 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Risks hierarchy INTENSITY FREQUENCY LOW RISK MODERATE RISK HIGH RISK EXTREME RISK

7 7 Risks and Insurance policies Risk Management in Civil Engineering – LNEC  Retention: establishing enough reserves to overcome the possible losses ¿how do we face the Risk? Risk  Transfer: negotiating a specific insurance in order to give external coverage to the possible occurrence of a loss. option 1 option 2

8 8 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Retention or Risk Transfer  Risks with high probability and low consequences. (Risks have to be taken or "self-insured" if they don't affect the financial stability of the company).  Risk with low probability and severe consequences (it is necessary to establish the limits of “significancy of a risk” for the company, individually and combined). ¿Retention? ¿Risk Transfer?

9 9 Risks and Insurance policies Risk Management in Civil Engineering – LNEC The Cost of the Risk Expected Loss Ratio Costs of the Risk Control Costs of the Financing of Risk Costs of Risk Reduction Unexpected Costs  % on Incomes

10 10 Risks and Insurance policies Risk Management in Civil Engineering – LNEC “A high number of companies never overcome a major loss, because of not beeing forewarned” “The important thing is not to find out who will pay (usually an insurance company), but to ensure that your business will not be forced to stop, that you will not loose either clients or suppliers and, even, that your competitors will not take advantage of the circumstance to finish off your business.” What happens actually? Feb 2005

11 11 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Risks clasification  Identified and Known  assessable.  Identified and Unknown  because it's difficult to evaluate its consequences.  Unidentified and Unknown  surely we will be surprised (development risks).

12 12 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Particularities of Civil Engineering Each project is different from the previous, always showing different elements (ground conditions, climate, workmanship…) Technological development and innovation are steady, both in machinery and in materials Frequently there is non-skilled labour in the lowest levels of the chain Use and maintenance are sometimes not as careful as they should.  Risks are often 'Unknown' (identified or not), due to:

13 13 Risks and Insurance policies Risk Management in Civil Engineering – LNEC The Risk in Civil Engineering a) of Internal origin: RISK FACTORS (material damages): b) of External origin: Project Works performance (incl. materiales) what do they depend on? SOURCE CONSEQUENCES Natural hazards (Acts of God) Acts of third parties

14 14 Risks and Insurance policies Risk Management in Civil Engineering – LNEC a) of Internal origin: on the quality of the project itself (its conception and design), not only regarding the future service's stresses, but also concerning the stresses during the construction phase, as well as the construction method chosen on the approach to the construction works: quality and adequacy of the resources (personnel, machinery, measurement instruments, etc), and on the planning, choice and supply materials and their control, etc. RISK FACTORS (material damages): what do they depend on? The Risk in Civil Engineering

15 15 Risks and Insurance policies Risk Management in Civil Engineering – LNEC b) of External origin: They DO NOT depend, in their origin, on the project and construction works (although in some cases they DO depend with regard to their probability of occurrence -example: acts of third parties-) and, in all cases, they also DO depend regarding the severity of their consequencies –example: flood, earthquake, etc.-) RISK FACTORS (material damages): what do they depend on? The Risk in Civil Engineering

16 16 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Example: Risks distribution Construction All Risk

17 17 Risks and Insurance policies Risk Management in Civil Engineering – LNEC 'insurable' Risks 'not insurable' Risks Example: Risks distribution Construction All Risk

18 18 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Deterministic analysis Based on scientific theories or empiric formulations: identical result if you take the same assumptions for the process (ex.: rust) Probabilistic analysis Based on occurrence probability of different risk's scenarios, estimating their consequences (ex.: flood) Statistical analysis Based on previous experience on existing statistics of losses (ex.: personal accidents at work) Risk's analysis

19 19 Risks and Insurance policies Risk Management in Civil Engineering – LNEC  Sufficient statistical base  Financial stability  Risks heterogeneity  Geographical compensation Pilars of insurance activity

20 20 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Statistical base for the analisys Number of losses. Date of occurrence and close date. Insured. Location. Description. Branch, guarantee, policy number and insurer. Split of losses's amount: - total losses, - insured losses, - not covered losses. - deductibles. - pay back from other insurers, - pay back from third parties, - fees. Very difficult to apply to Civil Engineering, due to the analyzed particularities: - projects are all different, - climate conditions influence in each and every case, - heterogeneous coverages - etc. Study of historical losses

21 21 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Risks distribution Exemple: Construction All Risk Losses > € (period 1990 – 2001) SOURCE: Münchener Rück

22 22 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Engineering Insurance Policies 1.Annual policies  (MB) – Machinery Breakdown  (BI-MB) – Business Interruption, resulting from a loss covered under the MB policy  (DOS)– Deterioration of Goods  (EEI)– Electronic Equipment  (CPM)– Contractors Plants & Machinery  (CECR)– Civil Engineering Completed Risks

23 23 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Engineering Insurance Policies 2.Temporary policies  (CAR) – Construction All Risk  (EAR) – Erection All Risks  (CAR-ALoP) – Advanced Loss of Profit in CAR  (EAR-ALoP) – Advanced Loss of Profit in EAR  Comprehensive policies (BOT, BOO,..)

24 24 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Engineering Insurance Policies 3.Multi-annual policies  Decennial (10 years cover)  Inherent Defects (2, 3 or more years cover) ....

25 25 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Engineering Insurance Policies 4.Special policies  Off-shore Risks (Oil-Platforms, Undersea-Pipelines,...)  Technological Risks (Manufacturer's Guarantee,...)  Space Risks (Moon Shots, Space Stations,...)

26 26 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Construction All Risk (CAR) Target policyholder?  each and every company taking part in the construction process (having interests on the construction itself)  Owner / Promoter  Main Contractor  Subcontractors Civil Engineering Insurance Policies  Policyholders [actually, the 'insured' is the Construction itself]

27 27 Risks and Insurance policies Risk Management in Civil Engineering – LNEC what types of works can be insured?  All kinds of works and facilities  Housing and buildings: residential, offices, hospitals, schools, industrial buildings, car parks, shopping centers, stadiums, power stations, etc.  Civil works, infrastructures: tracks (motorways, railways, pipelines, tunnels,...), bridges, hydraulic works (dams, water treatment plants,...), weet risks (breakwater, harbours,...), etc. Construction All Risk (CAR) Civil Engineering Insurance Policies

28 28 Risks and Insurance policies Risk Management in Civil Engineering – LNEC what is/can be included under the coverage?  All works, goods and tools which take part in the construction process or which are adjacent to the construction site:  CONST.WORKS: stored goods & materials, works brought on-site as part of the contract (earthworks, foundations, structures and finishing,..) temporary works erected or constructed on-site,...  MACHINNERY: cranes, bull-dozers, dumpers, pave-machinery...  EQUIPMENT: hand and machine tools, scaffolding, frames, pumps,...  EXISTING PROPERTY: in property or in custody of the insured (susceptible to suffer damages arising from the insured works) Construction All Risk (CAR) Civil Engineering Insurance Policies

29 29 Risks and Insurance policies Risk Management in Civil Engineering – LNEC SUMS INSURED:  The construction work itself (main coverage):  total contract value  at the completion date  to regularize  a margin should be foreseen (long time works)  Machinery (optional guarantee):  List with following data:  individual values (“new replacement”)  identification, technical features  manufacture year Construction All Risk (CAR) Civil Engineering Insurance Policies internal elechtrical and/ormmechanical damage are excluded

30 30 Risks and Insurance policies Risk Management in Civil Engineering – LNEC SUMS INSURED  Construction Equipment (optional guarantee):  total value of set (“new replacement value”) (a list should be attached)  no heavy machinery  Existing Property (optional guarantee):  "first risk value" (it should be sufficient for the reconstruction or replacement of the damaged goods) Construction All Risk (CAR) Civil Engineering Insurance Policies

31 31 Risks and Insurance policies Risk Management in Civil Engineering – LNEC SCOPE OF COVER  It is an "all-less" policy (all damages are included, but the damages which are specifically excluded) Condition: Sudden and unforeseen physical loss or damage to the property insured, occurred during the period of insurance, in the construction site, due to any accidental cause not specifically excluded Construction All Risk (CAR) Civil Engineering Insurance Policies

32 32 Risks and Insurance policies Risk Management in Civil Engineering – LNEC SCOPE OF COVER  ¿which Risks are actually covered? Construction All Risk (CAR) Civil Engineering Insurance Policies CONTRACT WORKS (basic cover) CONSTRUCTION MACHINERY (optional cover) CONSTRUCTION PLANT&EQUIP. (optional cover) EXISTING PROPERTY (opcional cover) THIRD PARTY LIABILITY (optional cover) Risks arising in connection with the execution of the project (unless that ones excluded) Natural hazars ("Acts of God", based on a defined threshold) Risks arising from acts of third parties (unless that ones excluded) G O O D S to be C O V E R E D against D A M A G E S

33 33 Risks and Insurance policies Risk Management in Civil Engineering – LNEC BeforeDuring construction worksAfter const.w. Dowloading material on-site previous storage inception of works construction works completion of works guarantees order of commitments with the works (for the main Contractor) Civil Engineering Insurance Policies Construction All Risk (CAR) PERIOD OF COVER Maintenance cover (optional) Main (basic) Cover

34 34 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Main (basic) Cover PERIOD OF COVER Civil Engineering Insurance Policies Maintenance cover (optional) Construction All Risk (CAR) BeforeDuring construction worksAfter const.w. Natural hazars ("Acts of God", based on a defined threshold) Risks arising in connection with the execution of the project (unless that ones excluded) Risks arising from acts of third parties (unless that ones excluded)

35 35 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Special cases (information required) :  advanced works (status of works: progress,...)  extensions / delay (reasons, occurred losses)  interruptions, suspensions (reasons, status of works, security measures,...)  early termination (status of works, occurred losses)  phased handover (situation, delimitations) Civil Engineering Insurance Policies Construction All Risk (CAR) PERIOD OF COVER

36 36 Risks and Insurance policies Risk Management in Civil Engineering – LNEC MAIN EXCLUSIONS (1)  Conventional exclusions Construction All Risk (CAR) Civil Engineering Insurance Policies  war, armed conflicts  nuclear risks  expropiation, confiscation  penalties (contractual or not)  willful misconduct of the insureds or of the technical which are responsibles for the construction works  consecuencial losses (indirect losses)  documents, cash values

37 37 Risks and Insurance policies Risk Management in Civil Engineering – LNEC MAIN EXCLUSIONS (2)  Specific exclusions Construction All Risk (CAR) Civil Engineering Insurance Policies Gradual deteriorations  wear and tear  'normal' effects of climate  rust or oxidation Defective design and workmanship (rectification)  regarding materials  regarding designs, calculations and drawings Deductibles (always have to be borne by the insured)

38 38 Risks and Insurance policies Risk Management in Civil Engineering – LNEC MAIN 'PROBLEMS'  Exemple 1 'Normal' effects of climat excluded but... ¿what is 'normal'? Construction All Risk (CAR) Civil Engineering Insurance Policies

39 39 Risks and Insurance policies Risk Management in Civil Engineering – LNEC MAIN 'PROBLEMS'  Exemple 2 Rectification of defective excluded design or workmanship but... ¿what is the 'defective part'? Construction All Risk (CAR) Civil Engineering Insurance Policies

40 40 Risks and Insurance policies Risk Management in Civil Engineering – LNEC RISK ASSESMENT: An individual analysis is required for each construction work:  configuration and exposition of the construction site (natural hazards, acts of third parties,..)  type of works and materials  construction method  safety measures in the planning  costs assesment regarding several scenarios of losses Questionnaire and Application for Insurance Civil Engineering Insurance Policies Construction All Risk (CAR)

41 41 Risks and Insurance policies Risk Management in Civil Engineering – LNEC SPECIAL ENDORSEMENT (1)  To include some additional or extended cover (optional)  001 :SRCC (strike, riot and civil commotion)  002 :cross TPL  003 :maintenance visits  006 :extra costs of acceleration (overtime, night work,..)  007 :airfreight  113 :national transport  116 :contract works taken over or put into service  119 :existing property Civil Engineering Insurance Policies Construction All Risk (CAR)

42 42 Risks and Insurance policies Risk Management in Civil Engineering – LNEC SPECIAL ENDORSEMENT (2)  To delimitate some covers and/or exclusions (some examples)  008 :structures in seismic zones  101 :tunnels, galeries, subsurface structures  104 :dams and water reservoirs  106 :sections  107 :camps and stores  109 :construction material  110 :safety measures (with respect to rain, flood and inundation)  112 :fire-fighting facilities and fire safety on site  121 :piling foundations and retaining wall works Civil Engineering Insurance Policies Construction All Risk (CAR)

43 43 Risks and Insurance policies Risk Management in Civil Engineering – LNEC SPECIAL ENDORSEMENT (3)  To exclude directly some usual coverages  009 :damages arising from earthquake  010 :damages arising from flood and inundation  103 :damages in crops, forest and cultures Civil Engineering Insurance Policies Construction All Risk (CAR)

44 44 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Target policyholder?  the owner or the operating company What types of works can be insured?  civil works, infrastructures, with a low fire risk Civil Engineering Insurance Policies Civil Engineering Completed Risks (CECR)

45 45 Risks and Insurance policies Risk Management in Civil Engineering – LNEC SCOPE OF COVER  It is a policy that covers "nominated risks" (a risk is covered only if it is referred specifically in the policy):  Unforeseen and sudden physical loss or damage caused during the period of insurance by: a.Fire, lightning, explosion, impact of landborne or waterborne vehicles b.Impact of aircraft and other aerial devices or articles dropped therefrom c.Earthquake, volcanism, tsunami d.Storm (air movements stronger than grade 8 on the Beaufort Scale) e.Flood or inundation, wave action or water f.Subsidence, landslide, rockslide or any other earth movement g.Frost, avalanche, ice h.Vandalism of single persons. Civil Engineering Insurance Policies Civil Engineering Completed Risks (CECR)

46 46 Risks and Insurance policies Risk Management in Civil Engineering – LNEC BASIS OF LOSS SETTLEMENT a) in case of damage wich can be repaired: “the cost of repairs necessary to restore the items to their condition immediately before the occurrence of the damage” (less savage and r.o.d.) b) in case of a total loss: a) If the loss occurs within the period stated in the schedule the replacement costs b) If the loss occurs after the period stated in the schedule the actual value of the insured items immediately before the occurrence of the loss (less savage) -> [deducting a proper depreciation from a)] Civil Engineering Insurance Policies Civil Engineering Completed Risks (CECR)

47 47 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Privately Financed Infrastructure Projects and Their Insurance PFIPrivately financed investments Most important models: BOTBuild - operate - transfer BOOBuild - own – operate Examples of other models: BLTBuild - lease - transfer ROTRehabilitate - operate - transfer ROORehabilitate- own - operate DBFODesign - build - finance - operate Civil Engineering Insurance Policies

48 48 Risks and Insurance policies Risk Management in Civil Engineering – LNEC BOT and BOO In both models, a project company builds, owns and operates a plant. BOT: the plant is transferred to a public operator after a period of e.g. 15 years at a low price. BOO: a transfer is not intended. Privately Financed Infrastructure Projects and Their Insurance Civil Engineering Insurance Policies

49 49 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Typical for private financing of infrastructure projects : Sponsors invest only small fraction of the required capital Major funds borrowed from banks Liability of the sponsors in case of increased cost or delay in completion is limited Construction phase particularly critical: Major funds are spent without the project generating cash. Privately Financed Infrastructure Projects and Their Insurance Civil Engineering Insurance Policies

50 50 Risks and Insurance policies Risk Management in Civil Engineering – LNEC PFI: Finance and Contract Structure Banks/ Lenders Project Company Suppliers Operator Host Govern- ment (Principal) project agreement insurance policy supply contract Contractor construction contract O&M contract Sponsors loan agreement Insurers shareholders' agreement Civil Engineering Insurance Policies

51 51 Risks and Insurance policies Risk Management in Civil Engineering – LNEC A Project Company is formed to erect and operate the plant or the infrastruture by means of a network of contract agreements. It often is a stock company. Banks will provide the funds necessary beyond the Sponsors' investments. The Principal, i.e. the initiator of the project, may be the host government, a licencing governmental agency or a public utility. The Principal agrees the project terms with the Project Company. The Contractor and Operator are normally shareholders in the Project Company. The Insurers are vital in view of the limited-recourse financing scheme. Civil Engineering Insurance Policies PFI: Finance and Contract Structure

52 52 Risks and Insurance policies Risk Management in Civil Engineering – LNEC PFI: Flow of Payments (Operating Phase): Suppliers Payment for fuel, materials and services Sponsors Banks Principal Interest and principal payments Interest payments Price for electricity Project Co. Civil Engineering Insurance Policies

53 53 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Typical examples of PFI Projects  large and communal: Commercially used buildings or civil works: - Large public buildings, hospitals - Air ports - Bridges, highways, tunnels Power stations (IPPs) and power distribution Water distribution and water treatment plants Civil Engineering Insurance Policies

54 54 Risks and Insurance policies Risk Management in Civil Engineering – LNEC PFI Insurance Requirements: Privately financed projects have a higher need for security. The project partners require a comprehensive insurance cover. The insured for construction and operation is always the project company. Civil Engineering Insurance Policies

55 55 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Transport Storage Construction/Erection Works Testing Operation Fire Ins. and Fire Loss of Profit Machinery Ins. and MLOP Maintenance Electronic Equipment Ins.. Public and Prod. Liability Ins. Workmen's Compensation Insurance Erection/Contractor`s All Risk Ins. incl. Liability Cover Marine Insurance Contractor`s Plant and Machinery Insurance Advance Loss of Profit Guarantee Insurance Marine Loss of Profit Maintenance Cover Insurance covers of industrial projects Civil Engineering Insurance Policies

56 56 Risks and Insurance policies Risk Management in Civil Engineering – LNEC st gas turbine MW 2nd gas turbine MW Steam turbine MW / combined-cycle unit 600 MW total Erection Tests Commercial operation Erection covers Operational covers Erection Tests Erection covers Commercial operation Operational covers Erection Erection (All Risks) covers Tests Com. op. Op. cov. Staged Erection and Insurance Conventional Approach: (Example of a combined cycle power plant) Civil Engineering Insurance Policies

57 57 Risks and Insurance policies Risk Management in Civil Engineering – LNEC st gas turbine MW 2nd gas turbine MW Steam turbine MW / combined-cycle unit 600 MW total Erection Test Commercial operation Erection Test Com. oper. Erection Tests Com. op. Erection All-Risks cover Annual operational covers Staged Erection and Insurance Typical PFI Approach: (Example of a combined cycle power plant) Civil Engineering Insurance Policies

58 58 Risks and Insurance policies Risk Management in Civil Engineering – LNEC LoP insurance for a PFI LoP is an essential cover due to the scarce financial resources of the Project Company ALoP difficult to monitor:  Delays in early project stages may have - full impact - partial impact - no impact on the commencement of operation  Requires detailed and updated project schedules  Constant follow-up with insured and non-insured delays  Suppliers Extension intensifies the problem: The EAR/CAR insurer is normally not the manufacturer's local property insurer Civil Engineering Insurance Policies

59 59 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Time excess: ALoP: 60 days not uncommon, related to the total erection phase Operational LoP cover: days, related to each loss event individually. LoP insurance for a PFI Civil Engineering Insurance Policies

60 60 Risks and Insurance policies Risk Management in Civil Engineering – LNEC What do the Banks ask for in a PFI ? a) the Project Company shall obtain the widest possible insurance cover from the market, b) the banks' or lenders' interests shall be included, c) payment of indemnity shall be made to the banks or their trustees, d) all rights of recourse against the banks shall be waved, e) disregarding any right to refuse indemnity to the Project Company for any breach of conditions, the indemnity shall be paid to the banks including any loss of profits. Civil Engineering Insurance Policies

61 61 Risks and Insurance policies Risk Management in Civil Engineering – LNEC In PFI, beware of terms which aim at: ! an invalidation of policy conditions which would release the insured project contractor from the usual obligations, ! a direct claim or direct influence of a party outside the insured project contractors or principal executing the works, ! the imposing of obligations on the insurers towards the banks. Civil Engineering Insurance Policies

62 62 Risks and Insurance policies Risk Management in Civil Engineering – LNEC PFI: Breach of Contract / Vitating Act in case of a Multiple Insureds Policy No indemnification of the violating party Other insureds to be indemnified for their direct loss Recourse against violating party not to be waived However,  No indemnification of the banks Civil Engineering Insurance Policies

63 63 Risks and Insurance policies Risk Management in Civil Engineering – LNEC PFI: Multiple Insureds Clause (London Engineering Group) "In the event of any vitiating act committed by any one or more insured parties, the lenders shall not be entitled to any indemnity under this policy for or arising from loss or damage in respect of which insurers are otherwise no longer liable to indemnify..." Civil Engineering Insurance Policies

64 64 Risks and Insurance policies Risk Management in Civil Engineering – LNEC PFI: Who has an Interest in Insurance? The Principal Host Government The Project Company (manufacturers, site contractors, operators included) Indirectly Project Insurances The Banks Indirectly Civil Engineering Insurance Policies

65 65 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Insurance from a single source Desirable for the Project Company No interfacing problems from one risk phase to the next Comprehensive insurance scheme requested by the banks from the beginning However, !Covers traditionally underwritten by different markets and branches !Manufacturers, suppliers, hauliers, operators may engage their own insurers or brokers !Local insurers normally more engaged in operational than erection covers Civil Engineering Insurance Policies

66 66 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Insurance / Reinsurance Arrangement: P. Bond Project Company Project insurance Package Policy Intermediary Direct Insurer Mar. M-BI CAR/EAR+BI MB/CECR+BI F F-BI op. TPL Credit Reinsurer Marine Engineering Fire Liability Civil Engineering Insurance Policies

67 67 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Civil Engineering Insurance Policies Legal protection covers A&E Liability Mortgage default Homeowners Liability (TPL) Vandalism Accident covers Inherent defects CAR/EAR Contractor insolvency Fire NatCat Loss of Rent Residual value insurance “One-stop shop” Real estate wrap-up protection Bonds

68 68 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Different treatement of damages by inherent defects in buildings in european area ‘Property‘ or ‘Liability‘ insurance ? Is it necessary an insurance ? voluntary or mandatory insurance ? Civil Engineering Insurance Policies

69 69 Risks and Insurance policies Risk Management in Civil Engineering – LNEC Spain France Italy U.K. Benelux Holland Greece Turkey Portugal Decennial insurance in Europe Mandatory Insurance Voluntary Insurance In developpment Sweden and Finland ? Civil Engineering Insurance Policies

70 70 Risks and Insurance policies Risk Management in Civil Engineering – LNEC ‘DO’ Cía. A ‘DO’ DL Perito Experto Prom./User indemnification DL DL Cía.Aseg.Y DL Cía.Aseg. X Recurso Contractor Y Contractor X Liability share on damages between X and Y (CRAC) Example 1: France => mandatory ‘dual’ insurance system Civil Engineering Insurance Policies

71 Many thanks for your attention! José Luis Montull Münchener Rück


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