It is a sad indictment of the construction insurance industry that there is almost always a degree of animosity and frustration from the insured (the client!) in the handling of DSU (Delay In Start-up) claims. There are many reasons for this, and no one fix-all solution. However, there is one proactive measure available, that is known to make a big difference – Project Monitoring.
This is no secret, as it is well documented in insurance literature, the pivotal role that project monitoring plays in DSU insurance. It is known to overwhelmingly contribute to a fair, prompt and harmonious resolution of delay claims. As well as offering many pre-loss risk management and risk mitigation benefits.
Therefore, we describe project monitoring, as the ‘keystone’ of DSU insurance.
If Project Monitoring is the ‘keystone’ of DSU Construction insurance, then why is it done so infrequently? What are the consequences of ignoring it?
Ignoring Project Monitoring
There are many reasons why project monitoring does not always happen. It is not always clear who is responsible to organise it (broker, underwriter, risk engineer, contractor…?), nor is there a clear understanding of who is going to pay, how much it costs and the added benefits.
Once an insurance contract is formalised, brokers and underwriters need to do a lot of filing and post-binding administration – including use out of date, ill-equipped software programs. There is no check box or system in place to arrange monitoring. In short, the cover is bound, the risk is simply filed and forgotten – along with any notions of monitoring the project.
There may be fleeting attempts to address the project monitoring in later months, or years, when there is a rumour that project xyz is running behind schedule, but the idea is quickly put back in the too hard basket. “We have come so far without a loss, why go to the effort to monitor the project now…”
DSU Claims – What really happens
Construction accidents and claims are stressful for the insured. They are bombarded with questions and requests. Not only from insurers, but also from their head office, unions, local authorities, financiers, etc. They do not know who to trust and what information to share.
They also need to clean up the site, ensure the safety of the construction team and get on with rectifying any damage, and ultimately getting the project back on track, are the major concerns.
Decisions need to be made fast. Failure to do so, or the wrong decision is often costly. If the project has not been monitored, the insurers who will likely be paying for the repairs and delay costs, are not in a position to be able to contribute to these decisions. This is a common ‘bone of contention’, if aspects of the claim are later denied.
The starting point to adjust any DSU claim, is knowing the status of the project at the time of the loss. Again, without any project monitoring information, it is not uncommon for a lengthy legal tussle to ensue over getting access to relevant site documentation. It is human nature for the insured to retreat and be hesitant about sharing privileged information at this stressful time. Resolving, the flow of information may take months to resolve.
After which, the adjustment team and insured must try and ascertain/validate the pre-loss status and the possible construction delay with limited information. Made all the more harder, when the key planners and project managers have moved to the next project in another region of the world.
So, in the absence of Project Monitoring data, trying to establish or verify the project status retrospectively is not only costly, but can inevitable lead to further delays, higher costs, contested claims and almost without exception, an extremely frustrated client who is wondering why they bought the cover in the first place and is looking for the first opportunity to change their broker and underwriter.
Who Pays for Project Monitoring?
For most large construction insurance programs, there is a panel of insurers and reinsurers who share portions of the insurance cover. 2-5% of the overall premium is set aside for risk engineering expenses. This is usually paid to and administered by the lead insurer – the insurer with the largest share.
For DSU projects it is ‘assumed’ that conducting and/or arranging project monitoring is the responsibility of the lead. There are also occasions when the project monitor is appointed by the broker.
The project monitoring services are paid for, out of these fees. The cost of monitoring depends on the size of the project, reporting frequency and detail required in the reports.
Additional Benefits of Monitoring
No major construction project is built according to the original plan. Changes are inevitable, and managing and these changes is major component of project planning and the role of project engineers.
Project monitoring provides transparent and independent progress information of the insured construction site. It ensures that the underwriters and brokers are informed of any ‘material’ change, and can advise the insured and make the appropriate adjustments to the coverage where necessary.
Risk engineers can structure their visits to coincide with important events on site and focus on the most meaningful hazards and exposures.
The insured can benefit from the project monitoring reports. They can highlight or reveal many planning related challenges that they may not have been aware of. Or, simply give added reassurance that the project is running smoothly, confirming their own data.
What are the next steps?
Make project monitoring a part of your post binding requirements for all projects with DSU. It is never too late to start monitoring a project on risk.
There is some initial effort to get the monitoring up and running for a project, but once everything is in place it almost looks after itself.
We are acutely aware of the daily demands, pressures and time-limitations of onsite project staff. That is why we have designed our monitoring to be performed remotely (i.e. not at site) and using data and documents that are produced on site regardless, so that we cause minimal interference to the construction team.
The occasional and rare visit to site might be required. This can also by performed by your risk engineer.
We can get you started, or handle the entire process for you.
Contact Mirabelle to find out more!