Allocation of Insurance-Related Risks and Costs on Construction Projects

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.

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

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

Included in the summary is an excellent Glossary of Terms related to risk management and insurance.