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Investigating The Effectiveness Of Insurance As Risk Management Tool In Construction Industry
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Construction insurance
is a practice of exchanging a contingent claim for a fixed payment to
protect the interests of parties involved in a construction project.
Construction insurance is a major method of managing risks in the
construction industry. Its primary function is to transfer certain risks
from clients, contractors, subcontractors and other parties involved in
the construction project to insurers to provide contingent funding in
time of difficulty. Construction insurance plays an increasingly
important role in guaranteeing the success of projects, with insurers
sharing losses resulting from natural disasters and other contingencies.
Insurance is, of course, only one means of managing risks associated
with projects. It needs to be put into context and understood that not
every risk can be insured against, insured against adequately or insured
for a price that is acceptable. As stated in the statement of problem,
construction insurance does not receive the attention it deserves as a
result of lack of proper risks management practices in the construction
industry. The research sought to identify insurable risks and the types
of insurance typically involved in the Nigerian construction industry.
The study is expected to contribute in raising the awareness of the
insurable risks and policies which project participants are exposed to,
in construction contracts. It provides a tool for decision-making in
contract formation especially in insurance policies.
1.2 Statement of the Problem
The
provision of insurance is generally considered important and indeed in
the event of a major loss, the insurance may be the only viable means of
repaying financiers or ensuring that the Project is back on track.
However paradoxically, rarely does insurance receive the attention it
deserves, either within the overall context of the deal or in the detail
of the interrelationship between the drafting of the construction
contracts. Also practitioners sometimes do not have a clear
understanding of risk allocation and the strategy of risk management
through insurance. This can result in claim difficulties which can
consequently affect the project in diverse ways, such as increase in
project cost, completion time of the project as well as quality.
It
is important to understand the extent of the insurance contract before
contractual terms are finalized to avoid circumstances where risks have
been assumed based on the wrong assumptions of a party's ability to
obtain particular insurance at a commercially acceptable price (or at
all). This is of particular concern in the current climate where
insurance premiums are higher; policies contain many limitations and
exclusions.
CHAPTER ONE -- [Total Page(s) 3]
Page 2 of 3
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ABSRACT - [ Total Page(s): 1 ]The nature of construction business is risk versed. Most forms of construction contract recognized the use of insurance as risk management tool. Few studies however, evaluates its effectiveness as risk management tool. This study investigated the efficacy of insurance in curbing risks in construction project delivery. The objectives were to identify insurable risks in construction project delivery, identify prevalent insurance policies in the construction industry, and to determine their level o ... Continue reading---
