RT-019 Topic Summary
RT 019


The materials found within this topic provide both a primer on basic insurance coverages within the construction industry and an in-depth resource to learn about the details of risk management. Coming off a hard (or sellers) market cycle in the mid-1980’s, the CII Insurance Task Force took a hard look at the insurance industry as it relates to construction. In the early 1990’s, the Task Force developed a few recommendations aimed at improving the insurance environment for both owners and contractors. Many of these recommendations, and most of the material, are still relevant today and provide a great place to start if one wants to learn more about risk management as applied to construction, with the goal of reducing the total cost of risk for both owners and contractors.                             

Key Findings and Implementation Tools

1 : A Cultural Change Is Needed

For the construction industry to implement the conclusions and recommendations of this task force, it will require active involvement by executive management to bring about a cultural change in terms of risk management philosophies for many larger companies. If these changes are implemented on a wide-scale, the construction industry could significantly lower its total cost of risk. This would help improve the competitiveness of the construction industry in the United States and help to develop a competitive advantage in international markets.
Reference: (RS19-1)

2 : Five Changes That Can Lead to Less Risk Financing

The impacts on construction can be diminished if projects would rely less on insurance and other risk financing arrangements, focusing more on cooperation and loss prevention. Five steps to focus on include: (RS19-1, p.2)

  1. Allocating project risks in a manner to avoid duplication of expenditures for risk financing and/or insurance
  2. Enhancing safety programs
  3. Using higher deductibles and/or self-insured retentions
  4. Handling uninsured exposures in innovative ways
  5. Developing long-term relationships among construction project participants (including insurers) based on cooperation and trust
Reference: (RS19-1)

3 : Five Ways to Reduce the Total Cost of Risk

Five specific changes are detailed within the research that can be implemented by both owners and contractors to reduce the total cost of risk.

  1. Construction safety practices
  2. Indemnification by contractors of owners
  3. Contractors’ liability for damage caused to owner properties
  4. Construction project risk funding
  5. Education and planning
Reference: (RS19-1)

4 : Steps in the Risk Management Process

More attention should be given to the risk management options other than insurance. The following five steps are discussed in detail within the research:

  1. Risk Identification
  2. Risk Measurement
  3. Risk Management Tools (selection)
  4. Implementation
  5. Monitoring/Evaluation
Reference: (SD-96)

5 : Risk Management Glossary

Included in the summary is an excellent Glossary of Terms related to risk management and insurance.
Reference: (RS19-1)

Key Performance Indicators

Improved cost, Reduced/improved risk

Research Publications

The Optimal Allocation of Insurance Related Risks and Costs in Construction Projects - SD-96

Publication Date: 01/1994 Type: Source Document Pages: 292 Status: Archived Reference

Allocation of Insurance-Related Risks and Costs on Construction Projects - RS19-1

Publication Date: 11/1993 Type: Research Summary Pages: 42 Status: Supporting Product