Blog author: Kim Vernau – CEO, BLP Insurance
When something goes wrong in a construction project, the first question that usually gets asked is, “Whose fault is it?”. The contractor may blame the architect for a design defect by submitting incomplete drawings. The architect may blame the contractor for failing to control their subcontractors. The contractor may blame the professional consultant for failing to properly supervise the works and suppliers. The consultant may blame the employer for late payment of fees. So whose insurance policy should pay?
The principle of proper integration and collaboration when it comes to managing the insurance process in the construction industry has been discussed for many years: the need to align the interests of clients, contractors, consultants and others in the supply chain is not a new concept. However, the introduction of Integrated Project Insurance (IPI), whereby the client and project team are collaborating under a single insurance policy is a huge step towards finding a solution to this age old problem.
The existing insurance framework in the construction industry is a far cry from this collaborative approach, with a culture of passing risk down the supply chain. Leaving it to each member of the construction process to insure the risk under their own insurance policy perpetuates a defensive system which is unhelpful for the end client. In the event of an issue or problem emerging throughout the project delivery, it is likely that the parties will take opposing positions to avoid any risk of liability. This culture of litigation and legal costs is one of the most substantial elements of any current construction insurance claim.
Significant strides have already been taken towards a more collaborative approach in the construction process with the implementation of the Government’s Construction Strategy. In particular, the mandate to implement Building Information Modelling (BIM) is already underway. This aims to change the dynamics of the construction supply chain, unlocking more efficient ways of working together. The question is whether the insurance industry is able to respond and adopt the collaborative approach that BIM requires.
IPI will revolutionise the way that projects are insured. A single policy covers the entire construction delivery team (client, contractors, consultants and specialists), replacing individual construction insurances. In contrast to traditional policies, it is the project risk that is insured rather than liability. Crucially it also covers any financial loss without the requirement to prove fault by the party from whom the problem has originated from.
Not having to prove fault on the part of one individual goes a long way towards eliminating the blame culture in the construction industry. Instead it fosters a more collaborative approach that is focussed on achieving outcomes aligned to the needs of the client, primarily delivering the project on time, within budget and in line with the agreed specification. This joint risk culture, where the team can either stand or fall together under the combined liability, also naturally motivates the quick resolution of any problems.
So how does it work in practice? Once a project team has been assembled, a strategic brief and cost plan is drawn up including the specification, time frame, cost and maximum liability. The involvement of a technical and cost assessor throughout the project delivery serves to identify any issues early on in the cycle and reduce the risk of anything going wrong. In the event that the project fails to deliver the specifics outlined in the strategic brief, then the IPI will respond to any losses.
The first trial of a project operating with IPI is now underway at Dudley College, where a new Centre for Advanced Building Technologies is being built using this collaborative approach. BLP Insurance has been appointed as the local Technical Inspection provider on the Advance II project alongside SECO.
At this trial project stage, it is difficult to predict the impact that IPI will have on the construction industry. It may still take years to determine whether it will be a success. Not only will the whole of the supply chain have to come to terms with a different method of working collaboratively, but they will also have to agree a completely new insurance product. What is clear, however, is that IPI has the potential to become a real game changer and to address a fundamental problem in the industry which, until now, has not had a real solution.
Note: Blog posts are the views of the author(s), and do not necessarily represent the views of JCT.