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“Silent Risks”

“Silent Risks”. Bassem Mesallam Vice President – Engineering Underwriting Oman Insurance Company. CONTENT. Implications of financial crisis on Construction Insurance Typical triggers for interruption of works Work Interruption – Three Scenarios Risk assessment

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“Silent Risks”

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  1. “Silent Risks” Bassem Mesallam Vice President – Engineering Underwriting Oman Insurance Company

  2. CONTENT • Implications of financial crisis on Construction Insurance • Typical triggers for interruption of works • Work Interruption – Three Scenarios • Risk assessment • Basic requirements for site protection • Salient features of standstill cover • Summary BM

  3. IMPLICATION OF FINACIAL CRISIS ON CONSTRUCTION INSURANCE • Cancellation and postponement of orders • Suspension of ongoing projects • Negative growth of premium • Increase of loss ratio due to moral hazards • Difficulty in premium collection BM

  4. IMPLICATION OF THE FINACIAL CRISIS ON CONSTRUCTION INSURANCE – Cont. • Shrinkage of reinsurance capacity • Reallocation of resources and expenses • Increased pressure on project costs (Contractors compromise on safety measures to save on cost) • Late payment by clients BM

  5. TYPICAL TRIGGERS FOR INTERRPUTION OF WORKS • Failure of investors to fulfill their obligations • Cash flow and liquidity problems • Viability of the project as a result of changes in the economic environment • Work progress affected by disputes between the principal and a contractor • Project time schedule delayed by shortage of, or late delivery of material and equipment BM

  6. WORK INTERRUPTION LEADS TO THREE POSSIBLE SCENARIOS Scenario 1 - Abandonment of the project Scenario 2 - Abandonment of the site Scenario 3 - Temporary interruption of the project BM

  7. INSURANCE PERSPECTIVE • “Material Change in Risk”. • Cessation of insurance cover (General Exclusion “d”) • Immediate notice to Insurers (General condition no. 4) • Modification of terms (standstill cover) • Re-confirming continuity of cover • Informing reinsurers It is important to remember that ........... BM

  8. SCENARIO I - ABANDONMENT OF THE PROJECT EFFECT: Cancellation of the policy with final premium adjustment CHECK LIST: 6 W’s Principle • Written confirmation from the principal • Whether premium has been paid (in full or in part) • Whether any work has been carried out on the site • Whether any claim has been lodged under the policy • Whether any bank financiers/assignments are involved • Worth of the client BM

  9. SCENARIO I - ABANDONMENT OF THE PROJECT – Cont. PREMIUM ADJUSTMENT: • Partial work undertaken: • Time on risk • Value at risk • Loss experience • No work undertaken • Admin fees and expenses • Reinsures’ agreement is must in case of fac placement • Each case shall be evaluated on its own merits BM

  10. SCENARIO I - ABANDONMENT OF THE PROJECT – Cont. PROSPECT: • The project may still present an insurable value depending on the stage of completion • Suitable insurance options to be examined BM

  11. SCENARIO II - ABANDONMENT OF THE SITE EFFECT: Policy cover ceases in line with General Exclusion No. d ACTION: • The project may still present an insurable value • Identify party with an ongoing insurance interest • Standstill cover to be provided BM

  12. SCENARIO III - TEMPORARY SUSPENSION BY MUTUAL AGREEMENT EFFECT: Policy cover ceases in line with General Exclusion No. d ACTION: • The project may still present an insurable value • Standstill cover to be provided BM

  13. PROJECTS FREQUENTLY AFFECTED BY SUSPENSION • Residential and commercial buildings • Civil engineering projects • Industrial buildings • Complex projects BM

  14. CONSTRUCTION PHASES & RISK PROGRESSION BM

  15. MAIN HAZARDS DURING STANDSTILL PERIOD Example: Commercial Building • Water • Fire • Theft, Burglary and malicious damage • TPL BM

  16. SITE SURVEY • Stage of completion and estimated value of completed portions • Comparison of planned to actual progress • Water exposure • Drainage facilities • Windstorm exposure • Fire exposure • Fire-fighting facility • Exposure to theft or burglary • Third party exposure • Storage of material or equipment BM

  17. BASIC REQUIREMENTS TO SITE PROTECTION • 24 hours security • Fencing of site • Clearance of combustible waste material • Removal of highly inflammable and combustible material • Adequate fire fighting equipment • Installing safety nets around superstructures BM

  18. SALIENT FEATURES OF STANDSTILL COVER • Cover is reduced from “all risks” to “named perils” • Standstill cover can be endorsed and extended at certain time intervals • Deductibles of the original policy are either maintained or adjusted • The SI must be monitored and adjusted in response to inflation and currency fluctuation • Any resumption of all risks cover is subject to a survey BM

  19. SUMMARY • Material change in risk • Re underwriting • Terms and conditions for the silent risks are based on site survey SILENT RISKS ARE ALWAYS TAILOR-MADE SOLUTIONS BM

  20. THANK YOU For more information please contact: Bassem Mesallam Te: 04 2337803 Email: bassem@tameen.ae BM

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