“Silent Risks”
Bassem Mesallam
Vice President – Engineering Underwriting
Oman Insurance Company
CONTENT
 Implications of financial crisis on Construction Insurance
 Typical triggers for interruption of works
 Work Interruption – Three Scenarios
 Risk assessment
 Basic requirements for site protection
 Salient features of standstill cover
 Summary
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IMPLICATION OF FINACIAL CRISIS ON
CONSTRUCTION INSURANCE
 Cancellation and postponement of orders
 Suspension of ongoing projects
 Negative growth of premium
 Increase of loss ratio due to moral hazards
 Difficulty in premium collection
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IMPLICATION OF THE FINACIAL CRISIS ON
CONSTRUCTION INSURANCE – Cont.
 Shrinkage of reinsurance capacity
 Reallocation of resources and expenses
 Increased pressure on project costs (Contractors
compromise on safety measures to save on cost)
 Late payment by clients
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TYPICAL TRIGGERS FOR INTERRPUTION OF
WORKS
 Failure of investors to fulfill their obligations
 Cash flow and liquidity problems
 Viability of the project as a result of changes in the
economic environment
 Work progress affected by disputes between the principal
and a contractor
 Project time schedule delayed by shortage of, or late
delivery of material and equipment
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WORK INTERRUPTION LEADS TO THREE
POSSIBLE SCENARIOS
Scenario 1 - Abandonment of the project
Scenario 2 - Abandonment of the site
Scenario 3 - Temporary interruption of the project
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INSURANCE PERSPECTIVE
 “Material Change in Risk”.
 Cessation of insurance cover (General Exclusion “d”)
 Immediate notice to Insurers (General condition no. 4)
 Modification of terms (standstill cover)
 Re-confirming continuity of cover
 Informing reinsurers
It is important to remember that ...........
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SCENARIO I - ABANDONMENT OF THE PROJECT
EFFECT: Cancellation of the policy with final premium
adjustment
CHECK LIST: 6 W’s Principle
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Written confirmation from the principal
Whether premium has been paid (in full or in part)
Whether any work has been carried out on the site
Whether any claim has been lodged under the policy
Whether any bank financiers/assignments are involved
Worth of the client
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SCENARIO I - ABANDONMENT OF THE PROJECT –
Cont.
PREMIUM ADJUSTMENT:
i)
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Partial work undertaken:
Time on risk
Value at risk
Loss experience
ii)

No work undertaken
Admin fees and expenses
III)
Reinsures’ agreement is must in case of fac placement
IV)
Each case shall be evaluated on its own merits
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SCENARIO I - ABANDONMENT OF THE PROJECT –
Cont.
PROSPECT:

The project may still present an insurable value
depending on the stage of completion

Suitable insurance options to be examined
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SCENARIO II - ABANDONMENT OF THE SITE
EFFECT:
Policy cover ceases in line with General Exclusion No. d
ACTION:
 The project may still present an insurable value
 Identify party with an ongoing insurance interest
 Standstill cover to be provided
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SCENARIO III - TEMPORARY SUSPENSION BY
MUTUAL AGREEMENT
EFFECT:
Policy cover ceases in line with General Exclusion No. d
ACTION:
 The project may still present an insurable value
 Standstill cover to be provided
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PROJECTS FREQUENTLY AFFECTED BY
SUSPENSION
 Residential and commercial buildings
 Civil engineering projects
 Industrial buildings
 Complex projects
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CONSTRUCTION PHASES & RISK PROGRESSION
Maintenance
Rainy Period
Value
Rainy Period
Construction Period
Mobilisation
Substructure
Superstructure
Demobilisation
(30 days)
(3-6 months)
(18-24 months)
(12 - 24 months)
Period
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MAIN HAZARDS DURING STANDSTILL PERIOD
Example: Commercial Building
 Water
 Fire
 Theft, Burglary and malicious damage
 TPL
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SITE SURVEY
 Stage of completion and estimated value of completed
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portions
Comparison of planned to actual progress
Water exposure
Drainage facilities
Windstorm exposure
Fire exposure
Fire-fighting facility
Exposure to theft or burglary
Third party exposure
Storage of material or equipment
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BASIC REQUIREMENTS TO SITE PROTECTION
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24 hours security
Fencing of site
Clearance of combustible waste material
Removal of highly inflammable and combustible material
Adequate fire fighting equipment
Installing safety nets around superstructures
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SALIENT FEATURES OF STANDSTILL COVER
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Cover is reduced from “all risks” to “named perils”
Standstill cover can be endorsed and extended at certain
time intervals
Deductibles of the original policy are either maintained or
adjusted
The SI must be monitored and adjusted in response to
inflation and currency fluctuation
Any resumption of all risks cover is subject to a survey
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SUMMARY
1. Material change in risk
2. Re underwriting
3. Terms and conditions for the silent risks are
based on site survey
SILENT RISKS ARE ALWAYS TAILOR-MADE SOLUTIONS
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THANK YOU
For more information please contact:
Bassem Mesallam
Te: 04 2337803
Email: bassem@tameen.ae
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