© 2020 Arthur J. Gallagher & Co. | ajg.com/uk

This document provides an overview of construction and examples of key insurance considerations for Owners / Developers who are undertaking construction and redevelopment projects.

It is the Owner / Developer who could ultimately suffer if an inadequate insurance programme is arranged. Construction and redevelopment projects can be highly complex, and one of the ways the project team can display control and management of the process is via an Owner Controlled Insurance Programme (OCIP), enabling them to ensure an on-time and on-budget delivery of their projects.

An OCIP is a bespoke set of construction insurances, designed to cover all parties to a project, arranged by the Owner / Developer. It enables the Owner / Developer to have bespoke, project specific insurance cover, rather than having to rely on the Contractors annual programme being adequate, furthermore it brings about the following benefits:

1. Ability to protect anticipated revenue stream via Delay in Start Up (DSU) insurance, often procured due to the extension of time that would be granted to Contractors following a specified peril loss i.e. fire, flood etc and therefore no liquidated damages could be levied.

2. Control; unaffected by contractor change risk and can lead claims due to directly holding insurer relationship which assists in minimising potential PR issues. In addition avoid common pitfall of Contractor supply chain disputes and therefore delaying claims payments.

3. Certainty of the true cost, creating budgetary stability, not impacted by losses on Contractors other projects which could cause their annual premium to increase.

4. Premium Instalments – premium payment dates can be agreed which are in line with budget requirements.

5. Coverage; any specific risks, concerns and requirements are discussed between the Owner / Developer and their broker, ensuring the insurance programme and coverage suits their risk transfer philosophy.

6. Broad form of policy wording – the wording can be tailored specifically for the project risks to ensure that any insurable risks are transferred to insurers.

7. Insurer selection – the Owner / Developer can control which insurer’s they want to use, taking into consideration existing relationships.

8. Non-cancellable policies for the project period, as written for the whole project period, rather than annual programmes placed by contractors.

9. Reduction in the likelihood of disputes between the project parties (and their individual insurers) as all parties are covered under the OCIP, leading to faster claim payments.

10. Compliance with any lender requirements and/or asset protection agreements.

11. Interface with operational insurances – integration between construction and operational insurances is critical for the Owner, especially where there are phased handovers.

Ultimately the Owner / Developer pays for the construction insurances under the contract so why not take control, and be aware of the true cost of the insurance coverage premiums for the entire project. In our experience the insurances procured in joint names are cost neutral and in some cases it can be far cheaper.

Project Insurance

The insurances to consider are broken down in to ‘core’ and ‘non-core’ insurances, and are as follows:

Core Insurances• Construction “All Risks” (including Existing Structures

where relevant)

• Delay in Start Up

• Third Party Liability and Non-Negligent Liability

Non-Core Insurances• Latent Defects

• Contractual Financial Loss

• Environmental / Pollution Liability

• Marine Cargo / Transit

• Legal Indemnities

Dealing with ContractorsShould an OCIP be of interest, Gallagher recommend at tender

stage, you request a breakdown of the insurance costs under the

contract, per class of insurance.

Gallagher can provide an insurance strategy document known as a “Notice to Tenderers” which is intended for distribution to tendering Contractors, the document sets out the desired insurance position and provides brief details of the cover to be provided by the Owner / Developer, and the covers to be provided by the Contractor. This should then enable the contractor to price fairly the cost of the insurances, taking into consideration what the Owner / Developer is arranging on behalf of the Contractor.

Regardless of an OCIP, the contractor usually still provides the following insurances:

• Professional Indemnity

• Construction Plant & Equipment and Temporary Site Buildings & Contents

• Employers’ Liability (statutory insurance required by Law)

• Motor Vehicles (statutory insurance required by Law).

Risk ManagementA robust risk management approach is always recommended,

common losses on UK building projects are fire and water damage.

The appointed Contractor(s) should have a water management

plan and can take guidance from the Construction Insurance Risk

Engineers Group’s “Avoidance of Water Damage on Construction

Sites” document, furthermore seek specific agreement from the

Contractors that they will comply with the Joint Code of Practice.

Would you like to talk?Peter Chesterfield Executive Partner, Business DevelopmentM: +44 (0)7488 469 669E: Peter_Chesterfield@ajg.com

Sam Hiller Associate, Gallagher ConstructionT: +44 (0)20 7234 4284E: Sam_Hiller@ajg.com

Gallagher have a dedicated Risk Management team with vast construction sector expertise. There is potentially enormous value to be added to your project by engaging with them at the earliest possible stage in the development.

Gallagher ServicesOur services will include the following activities:

1. Project ContractsReview and commentary where appropriate of insurance sections.

2. Risk IdentificationHighlighting and analysing risks and proposing insurance solutions.

3. Programme DesignAdvise on cover options, limits etc and both contractually and non-

contractually required insurances, plus initial budgetary indications.

4. Information PresentationCollating project information and production of underwriting

submission.

5. QuotationsMarket analysis, vetting of potential insurers, negotiation with

underwriters to obtain quotes and production and presentation of

quotation report.

6. PlacementFinalising agreed programme with insurers.

7. Post placement• Policy documentation including To Whom It May Concern

letters as required.

• Negotiation of any necessary amendments during the policy period.

• Co-ordination of site surveys and management of any subsequent recommendations.

8. ClaimsProvide claims manual to all parties relevant to the insurance

programme, liaise with the loss adjustor, pursue settlement of

claims from insurers and remit any sums received.

© 2020 Arthur J. Gallagher & Co. | ARTUK-1678

Arthur J. Gallagher (UK) Limited is authorised and regulated by the Financial Conduct Authority.

Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AW.

Registered in England and Wales. Company Number: 1193013. FP1420-2020 Exp. 03/11/2021.

These are brief product descriptions only. Please refer to the policy documentation paying

particular attention to the terms and conditions, exclusions, warranties, subjectivities, excesses

and any endorsements.