Is your indemnity insurer a keeper?

Steve von Roretz of Leppard Underwriting investigates the importance of having the right indemnity insurer on your building team.
There was a time, not too long ago, that the world looked somewhat disparagingly on the litigious nature of American society. But not any more. These days, most countries are faced with growing compensation cultures, and there are few industries more susceptible to the potentially devastating effects of litigation risk than the construction sector.
As the South African construction industry finalises the preparations for the 2010 FIFA World Cup, and looks ahead to benefiting from an increasing government focus on infrastructure development and sustainable economic growth, it needs to also take greater cognisance of the growing importance of effective, and comprehensive, risk management as an integral aspect of sustainable business success.

And while the most effective method of risk management for any construction project is undoubtedly one founded on the principle of prevention rather than cure, the sheer size and scope of most construction projects means that there is every possibility that something could go wrong. And when it does, a failure to have the right indemnity insurer on your project team could signal the same level of disaster as that which would befall a visiting World Cup squad that forgets to include a goalkeeper.
Contining this World Cup analogy, a construction project is much like a football match. It requires the right team of skilled, dedicated professionals that have spent time together honing their talents and preparing for the task at hand. In both scenarios, there are also risks for which the team must be prepared, and whether the ball slips through the defense, or the project slips past its agreed deadline, the buck ultimately stops with the last line of protection. In the case of the soccer match, that's the goalkeeper. In the case of the building project, it's the indemnity insurer. But in both cases, this is the person on whom the entire team now depends to avert certain disaster. Which is why having the right man on the job from the start is of paramount importance.

While this principle of total risk management is not unique to the World Cup, or the building projects it has spawned, it is one that should be top of mind for the engineer, architect, surveyor, project manager or construction company. For these parties, this type of comprehensive risk management means getting the basics right - from initial risk ratings to effective human resource training and development, maintaining written records, getting fully signed contracts that set out duties and expectations, specifying contractual limitations of liability, and agreeing on delivery measurement and time management.
All of these risk management requirements demand the services of a highly professional core team, combined with dedicated, supportive service providers, including a professional indemnity insurer who not only understands the industry, but also its risks, and has the knowledge and experience to be able to minimise fallout should the rest of the team 'drop the ball' for whatever reason.

Unfortunately, indemnity insurance is usually the 'grudge purchase' of the construction industry, and for this reason, the choice of insurer is often based on price considerations rather than the huge potential value inherent in having the right insurer on your team.
While this is understandable, selecting an indemnity insurer based on premium alone is inviting potentially expensive consequences. Instead, construction stakeholders need to give serious consideration to the experience of the insurers available, their ability to offer the services of underwriting and claims personnel with extensive built environment experience, and their overall claims management and claims payment philosophies. Perhaps more importantly, the insurers suitability as a long term partner and team member to the project is of utmost importance.
Because if, as should be the case, protecting your financial sustainability and guarding your credibility and reputation is the ultimate goal, having the right indemnity insurer on your team is the best way to ensure that an untimely mishap doesn't knock you out of the competition altogether.