Insuring Success - The fundamental role of project insurance in risk mitigation
The complexity and scale of construction and infrastructure projects give rise to a variety of risks that can jeopardise the viability of a project, making insurance a crucial component of project management. From time and cost blowouts to liquidation and litigation, project insurance is designed to mitigate losses resulting from unforeseen events during and after construction.
Comprehensive insurance coverage safeguards all stakeholders, especially the Principal, against loss. This article explores the types of project insurance, the importance of risk mitigation and the key considerations for effective implementation of project insurance in the construction and infrastructure sector.
Insurance plays a vital role in managing the significant risks inherent in construction and infrastructure projects, to such an extent that it has become standard practice for construction contracts to require risk mitigation through insurance. Contractual indemnity clauses typically rely on insurance policies to provide the associated financial protection. Essentially, insurance policies act as the ‘guarantee’ for the obligations outlined in the indemnity, ensuring there are funds available to cover potential claims or losses. Many financial institutions also now require project insurance to be held as loan security. Typically, the contractor bears the responsibility of obtaining such insurance under the contract.
