ESCL Annual Conference Stockholm 25 August 2006
Large Projects - Insurable to what Extent?
What drives the premium?
By Anders Lindberg, MSc CE, Vice President, If P&C Insurance Ltd, Stockholm, Sweden
If P&C:s definition of Large Projects
Contract value to exceed
EUR 10 - 50 millions
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Anders Lindberg, If P&C Insurance
Large and Complicated Projects
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Type of projects
Examples
Infrastructure
Bridges, Tunnels, Harbours
Process Industry
Petrochemical plants, Steel Mills
Power Generation
Gas Turbines, Waste Incineration
Anders Lindberg, If P&C Insurance
Insurable to what extent?
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Anders Lindberg, If P&C Insurance
A general principle of Insurance
To insure against loss or damage
where the identified risks and exposures
through professional Risk Assessment
and Risk Management can not be
eliminated or satisfactory mitigated.
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Anders Lindberg, If P&C Insurance
The Contract / Tender Documents
Risks and Responsibilities
–
–
clearly and understandably defined?
clear and fair distribution between parties?
Insurance Requirements
–
relevant and realistic?
Time Schedule
–
realistic or tight?
Information to Insurers
–
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extensive and clear enough?
Anders Lindberg, If P&C Insurance
Risks and Exposures to a Project
Risk / Exposure
Insurable?
 Physical damage
yes
 Time schedule delays
no
 Damage to Third Party
yes
 Damage to the Environment
yes, sudden and accidental
 Design Errors
yes but limitations
 Financial losses
certain exposures only
 Performance Guarantees
no
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Anders Lindberg, If P&C Insurance
What drives the premium for a specific Project?
(p1 of 2)
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–
The Insurance Market's
experience
–
Extent of Insurance
Cover requested
–
Sums Insured / Loss
Limits
–
Potential for Large
Losses
–
Level of Deductibles
Anders Lindberg, If P&C Insurance
–
Construction and
Maintenance Periods
–
Contractors' experience
and record
–
Risk Management
Programme
What drives the premium for a specific Project?
(p2 of 2)
Exposure
Driving parameters
 Type of Project
Potential for large and/or
frequent Losses
 Size of Project
Capacity requirements
 Prototypes
Unproven design, technology
and/or material
 Location
Geology
Rock and Soil conditions
Nat Cat exposures
 Third Party
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Anders Lindberg, If P&C Insurance
Storm, Flood, Earth Quake...
Capacity shortage!
Urban projects e.g.
underground systems
The Insurance Market for Large Projects
(p1 of 5)
Capacity - Infrastructure Projects of special concern
– Tunnels and Underground works
– Bridges
– Road Construction
– Wet works e.g. Harbours
– Off shore installations e.g. Wind Turbines, Sea Cables
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Anders Lindberg, If P&C Insurance
The Insurance Market for Large Projects
(p2 of 5)
International loss experience from Tunnel projects since 1994
11
Year
Projekt
Cause
1994
1994
1994
1994
1995
1999
1999
1999
2000
2000
2002
2002
2003
2004
2005
2005
Great Belt Link, Denmark
Munich Underground; Germany
Heathrow Express, UK
Metro Taipei, Taiwan
Metro Los Angeles, USA
Sewega Tunnel, Hull UK
TAV Bologna-Firence, Italy
Anatolia Motorway, Turkey
Metro Taegu, South Korea
TAV Bologna-Firence, Italy
Taiwan High Speed Railway
SOCATOP Paris, France
Shanghai Metro, China
Singapore Metro, Singapore
Barcelona Metro, Spain
Lausanne Metro, Switzerland
Fire
Collapse
Collapse
Collapse
Collapse
Collapse
Collapse
Earth quake
Collapse
Collapse
Collapse
Fire
Collapse
Collapse
Collapse
Collapse
Anders Lindberg, If P&C Insurance
Cost
MUSD
33
4
141
12
9
55
9
115
24
12
30
8
??
??
??
??
The Insurance Market for Large Projects
(p3 of 5)
Large Losses - example Singapore MRT spring 2004
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Anders Lindberg, If P&C Insurance
The Insurance Market for Large Projects
(p4 of 5)
Public Projects - Special Insurance Problems
Public tender regulations
– Reservations and/or deviations may not be accepted
Consequence
– Insurance requirements as per the tender documents can
not always be met by the Insurance Market
The Reality
– Capacity is available with few exceptions, but extent of
cover, deductibles and premium to be negotiated and
agreed
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Anders Lindberg, If P&C Insurance
The Insurance Market for Large Projects
(p5 of 5)
Policy Wordings - Special Conditions
Major Risks / Exposures
– Restrictions of Cover and Loss Limits may be imposed
Long and complicated projects
– Review Clauses
Risk Management Requirements
–
To be mentioned specifically:
A Code of Practice for Risk Management of Tunnel Works
Compliance with this code is or will be a prerequisite for
insurance cover of tunnel projects in all major markets
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Anders Lindberg, If P&C Insurance
The Players in the Insurance Market
Brokers, Insurers, Reinsurers and Loss Adjustors
always look for:
 Experience and know-how
 Capacity
 Satisfactory Financial Rating (Insurers and Reinsurers)
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Anders Lindberg, If P&C Insurance
Sources for further information
– IMIA, the International Association of
Engineering Insurers www.imia.com
– Insurers’ and Reinsurers’ publications e.g.
Munich Re, Swiss Re
– The Insurance Institute of London:
Report of Advanced Study Group 208B,
CONSTRUCTION INSURANCE
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Anders Lindberg, If P&C Insurance