Why project owners should consider a PCIP
The advantages of using a PCIP for construction project owners can be summarised under cost, cover, control, and claims.
Cost
A PCIP allows you as the owner to be in control of the insurance costs, rather than the contractor arranging the cover and charging you for it. The owner will always pay the insurance costs, whether directly on a PCIP basis or indirectly through the contract price. If you pay indirectly through the contract price, there is rarely transparency of the CW and TPL insurance cost being charged to you.
Where contractors arrange the insurance, they may add an element of profit or administration cost to the insurance line item. Where multiple contractors are involved, there are likely to be overlaps in insurance coverage in some places and hence wasted premium costs transferred to you.
Based on previous comparisons where we have had transparency on costs, significant premium savings may be achieved by taking a PCIP approach.
A PCIP provides full transparency of cost to the owner and puts you in charge of procurement. Where you have numerous contracts or projects, the cost savings are multiplied.
Cover
Using a PCIP means you choose the insurance cover to be designed for your project. Contractors will select a level of cover to reflect their risk appetite and may arrange a reduced level of cover to cut costs and increase profit. Uninsured losses can threaten a project, especially if the contractor experiences financial difficulty.
Regardless of the insurance procurement approach, some contractual risks will fall to you as the owner, and you are dependent on the project cover arranged to insure your liabilities. The contractors are primarily concerned with their retained risks. Without contractual provision for your risks, and a robust audit and approval process, you could end up with a significant and unnecessary uninsured loss.
In terms of the design of the project insurance cover, critically it should protect the interests of the whole project rather than each individual contract.
Where you have multiple contractors, they will only insure their own works. Solutions will need to be found to insure any partially completed construction works when they are handed over to you or another contractor. A PCIP is designed to meet your development requirements (not that of the contractor alone) and insure the project to the standard required, from start to finish.
Control
As the term implies, a PCIP approach means you, as the project principal/owner, are in control of both the cover and the panel of insurers providing the project insurance. The identity, reputation, and financial standing of these insurers should be important to you on any insurance placement.
As an owner, you are also named as the principal on the insurance policy, with control of the policy. Should any issues arise and a contractor needs to be replaced due to non-performance, insolvency, or any other form of contract frustration, there should be no concerns regarding the continuation of insurance cover.
Claims
Having a single insurance program to help cover all damage or legal liability events promotes a smoother claims handling process, minimising the potential for dispute, and offering a clear route to recovery.
You are in control of the claims monies and, in the event of a major incident, this could be key in settling any contractual disputes. From a third-party liability perspective, you may be concerned that any losses are settled quickly to reduce any negative project PR. This can be factored into the program design and will not be reliant on a contractor who may be reticent to affect their policy claims history.
Rather than increasing the administrative burden, a PCIP allows the cover arranged by you to be bespoke and efficient. It does not require checks to be carried out on each contractor’s coverage, often on an annually renewable basis.
