Project Insurance (3)

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It has been argued that the arrangement whereby contractors, sub-contractors and professional teams take out and maintain policies on the same project is unnecessarily expensive to the project owner, who ultimately pays the cost of all these policies. Project insurance, or “controlled”, “consolidated”, “wrap-up” or “portfolio” insurance (Lew and Overholt, 1999; Schexnayder et al., 2004; El-Adaway and Kandil, 2010), is designed to reduce the waste by having a single policy covering the contracts works and public liability of the project owner, contractors, designers, sub-contractors and suppliers. Cover against environmental liability and political risk may also be purchased as part of the project insurance package. A developer’s ability to obtain such comprehensive cover considerably improves its access to project finance (Percopo, 1999; Smith et al., 2001).

A theme running through most of the literature on project insurance is that it is most suitable for large and complex projects involving large numbers of project participants (Wright, 2002, 2005). Examples of projects on which it has been used include the Thames Barrier Scheme (Bunni, 2003); the Singapore Deep Tunnel (Schexnayder, 2002); the Eurotunnel Project (Bunni, 2003); and the Taiwan High Speed Rail Project (Lu et al., 2010). Schexnayder et al. (2004) report use of project insurance by transportation agencies in many states in the USA on projects with construction cost 4$100 million. The use of this risk management technique is not limited to the construction and engineering industries. The high technology risks and large financial investment requirements necessitating world-wide investor participation in commercial satellite projects make the use of project insurance on such projects an attractive option (Wong, 1998).



Project insurance is usually effected by the project owner but some contracts make the contractor responsible for such insurance (Lew and Overholt, 1999; Donovan, 1999; Schexnayder et al., 2004). A decision to use project insurance in place of the traditional arrangement must not be made without awareness of its advantages and disadvantages described in the literature (Levine and Wood, 1991; Eaglestone, 1996; Petersen, 1999; Lew and Overholt, 1999; Smith et al., 2001; Bunni, 2003; El-Adaway and Kandil, 2010). They are summarised in Table I.


To cite this document:
Issaka Ndekugri, Hannah Daeche, Diwei Zhou, (2013) "The project insurance option in infrastructure procurement", Engineering, Construction and Architectural Management, Vol. 20 Issue: 3, pp.267-289, doi: 10.1108/09699981311324005