About a week ago I was engaged in a discussion with two professionals in the construction industry. One of them being an Architect and the other an Engineer. As a student in the construction field, I inquired about the role of insurance in risk management in the construction industry but to my amazement, they attached no importance to insurance. They felt it is a waste by putting money where you might never need it. Their responses prompted me to go into research and I couldn’t keep to myself what I found.
Definition
‘Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of contingent, uncertain loss’ – Wikipedia
Taking a closer look at this definition, we can derive the following key words:
i. ‘equitable’ ; that is, amount of risk of a loss envisaged for equal amount of money paid.
ii. ‘one entity to another‘ ; typically, two parties are involved in an insurance arrangement. The insurer (also known as insurance carrier) and the insured (policy holder). The insurer is the company selling the insurance while the insured is the entity buying the insurance policy. However, an entity may be a person, group or a company driving towards a common goal.
The payment therein is called the ‘premium’. The contract between the two parties involved is called the insurance policy. The insurance policy will contain the conditions and circumstances under which the insured will be financially compensated.
An Insurance contract includes;
i. Identification of participating parties.
ii. Period of coverage
iii. Loss event covered
iv. The premium
v. The amount of coverage to be paid in event of loss.
vi. Events not covered.
Types of Insurance Contracts
i. ‘Pay on behalf ‘ policy
ii. ‘reimbursement’ policy and
iii. Indemnification policy
All these being said apply to insurance in general, however, how do they relate with the construction industry? Let’s take a look at the following:
Builder’s Risk Insurance
Building construction is capital intensive. Ranging from materials to equipment, everything on a builder’s site don’t come cheap. Imagine a situation where you have heavy equipment costing a fortune on your site and a warehouse housing materials costing millions. In an unfortunate incident of fire outbreak, how do you think you would survive it? Seeing equipment razed in fire or the warehouse burnt down could cause a heart attack for any onlooker not to talk of the project builder or manager. Insurance is the way to go. Once machineries and materials are insured, there would be a shoulder to cry on in an awkward moment like that.
Professional Liability Insurance;
Another area where insurance benefits us as professionals in the construction industry is this. This is commonly known as ‘error and omissions ‘ in the USA.
This insurance policy is the antidote against professional negligence trying to land you in a quick sand. For example, a quantity surveyor who in his course of estimating for a storey building omits a floor, the client is given a wrong bill ( underestimated bill). Without the knowledge of the negligence of the quantity surveyor, the project commenced up till the point where it is noticed that the client had exhausted his budget but the project is not near completion. Such a quantity surveyor is guilty of professional negligence and if he is not financially strong or has help from no one, he might not stand again after that fall. Therefore, no matter how professional you may be, mistakes can come in at any point in time. These mistakes are commonly due to negligence, misinterpretation and excess stress at work. Not to bear the loss all alone, you need a Professional liability insurance.
Claims:
Filling your claim may come as easy as a DIY thing if you don’t have complicated policies in your contract. However, if you do, you may hire a public adjuster who would help you negotiate your settlement on your behalf.
Putting money where it might never be needed sounds foolish but not when you are into insurance. Be not a penny wise and pounds foolish.
Get insured today!
Reference: Wikipedia.com
“docendo discitur”: It is learned by teaching.
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