Insuring Project Risks: Contractor Expectations versus Insurance Company Policies

Abstract

Risks are inevitable during the construction phase of a project. In particular, contractors may respond to the project risks by accepting, avoiding, mitigating, or transferring the risks to other parties. This study aims to explore the use of insurance as one of the risk response mechanisms by contractors. Data were collected through observation of project documents and semi-structured interviews with contractors from five construction projects and four insurance companies. This research identified 42 risks, which are categorized into three levels: 26% low, 48% moderate, and 26% high. Of these, the contractors expected only 20 risks (48%) to be insured, whereas the insurance companies considered only 19 risks (45%) insurable. The risks were mapped on a four- quadrant matrix based on a combination of contractors' expectations for insuring or not insuring project risks, and the insurance company policies against those risks. The matrix revealed that 12 (29%) risks were ideal (insured-insurable), 7 (17%) were overlooked (uninsured-insurable), 15 (36%) were considered reasonable (uninsured-uninsurable), and 8 (19%) were categorized as critical (insured-uninsurable). These findings serve as a reference for the construction industry stakeholders in decision-making related to project risk management.