Insurance is good! In return for payment of a premium, cover can be obtained in respect of risks that may occur in the future. This may allow the owners of assets, those undertaking refurbishment or construction work and Directors/Officers (faced with an increasing regulatory compliance or health and safety burden) to sleep more soundly. It is surprising then that so little or adequate attention is often paid to this valuable comfort blanket. Given the specific and onerous disclosure obligations prior to the inception of an insurance policy, there are numerous instances where companies would have been as well setting fire to the cash used to pay the premium for all the cover the policy will provide when the "insured risk" arises, due to a basic failure to adequately and properly disclose the nature of the insured property or risks.
Insurance policies are contracts, but not contracts that can simply be signed and put in the drawer. Not if the insured is keen on ensuring cover is in place should the risk arise, whether that be physical damage, plant failing to perform to guaranteed levels, or organisations/directors faced with fines and the costs of defending claims for compliance breaches or, increasingly, breach of health and safety legislation. Insurance policies, as well as insurance law, impose onerous obligations in terms of disclosure if the risk insured changes, to provide notice of an occurrence which may lead to a claim and often contain strict compliance obligations, particularly in relation to property, construction and project insurance, which if not met may at best reduce cover but more often than not entitle the insurer not to pay out at all.
A number of factors exacerbate the problem faced by those seeking to hand over insurance premiums and ensure expected cover is in place so that they can sleep soundly. Many insurance contracts, particularly in the construction, engineering, energy and projects sector, need to dovetail with a raft of other contracts, but do not! Dovetailing the project contracts alone is often a major task before the interaction with insurance is even considered. On a wind farm project the Wind Turbine purchase agreement must dovetail with the engineering contract and grid connection agreement, and address the manufacture overseas of plant for shipment to the UK. The project itself is often part of the core business and the primary objective, whereas insurance is a secondary but important contract to be put in place.
Insurance law is complex and, for the unwary, onerous. Often those involved in core business (property owner/developers, facilities managers, operators, lenders, etc) may not be aware of the risks to the insurance cover they think has been secured by payment of hard earned cash as premium. The number of parties or personnel involved in making projects happen can also act as an impediment. Not every company has the benefit of in-house insurance functions and expertise This is compounded by the fact that many advisors give insurance a wide berth and direct their clients to seek the advice of their insurance brokers. While this may be understandable from the advisers' risk perspective, as insurance advice can be highly specialised, it is nonetheless important that a joined up approach is taken in relation to all project contracts and a risk mitigation plan. Insurance brokers can be invaluable to most companies and their projects. However, it is often unrealistic to expect the broker to be a fairy godmother ensuring that cover is adequate, covers all risks and fits like a glove with project contracts which have been drafted by others, particularly if the broker is not heavily involved in the company's business or the project in question and the business/project team simply "pass the buck".
Problems can arise when a company thinks it is covered and the risk materialises but cover is reduced in whole or in part. The "black art" nature of insurance for many, and how this is or ought to be applied in terms of structuring policies, project contracts or related procedures can trip up the unwary. The trepidation with which many people approach insurance is not helped by insurance "markets" being opaque to the uninitiated and the terms of the policy often poorly drafted. Of all types of contract, insurance contracts have a reputation for being very poorly drafted, although this has changed substantially for the better in recent years.
Having paid out cash for advice and cover, a company relies on that cover being in place. Complacency must be guarded against and companies need to ensure that simple steps are taken to protect their "investment". A brief review by the company of its insurance programme or needs would establish the governance and compliance structures that ought to be in place, either for the organisation or for the project. Falling out of this review, controls that substantially reduce the risk can be put in place and the duties that require to be fulfilled by stakeholders, for example, facilities managers, finance and risk functions, property and construction professionals, etc., documented in a straightforward manner. Companies effecting insurance on a project-by-project basis can mitigate compliance costs by standardising processes and simple controls, backed up by reporting or audit requirements. Such tools have the potential to bridge the gap that exists between the complex world of insurance, and the requirements of the core business and to make contracts more effective tools in managing risk rather than just allocating and/or pricing risk. Complexity should be avoided, as should lengthy "manuals", but simple understandable procedures and tools should help stakeholders avoid sleepless nights when risks inevitably arise!