ESCL Annual Conference Stockholm 25 August 2006 Large Projects - Insurable to what Extent? What drives the premium? By Anders Lindberg, MSc CE, Vice President, If P&C Insurance Ltd, Stockholm, Sweden

Anders Lindberg, If P&C Insurance2 If P&C:s definition of Large Projects Contract value to exceed EUR millions

Anders Lindberg, If P&C Insurance3 Large and Complicated Projects Type of projects Infrastructure Process Industry Power Generation Examples Bridges, Tunnels, Harbours Petrochemical plants, Steel Mills Gas Turbines, Waste Incineration

Anders Lindberg, If P&C Insurance4 Insurable to what extent?

Anders Lindberg, If P&C Insurance5 A general principle of Insurance To insure against loss or damage where the identified risks and exposures through professional Risk Assessment and Risk Management can not be eliminated or satisfactory mitigated.

Anders Lindberg, If P&C Insurance6 The Contract / Tender Documents Risks and Responsibilities –clearly and understandably defined? –clear and fair distribution between parties? Insurance Requirements –relevant and realistic? Time Schedule –realistic or tight? Information to Insurers –extensive and clear enough?

Anders Lindberg, If P&C Insurance7 Risks and Exposures to a Project Risk / Exposure  Physical damage  Time schedule delays  Damage to Third Party  Damage to the Environment  Design Errors  Financial losses  Performance Guarantees Insurable? yes no yes yes, sudden and accidental yes but limitations certain exposures only no

Anders Lindberg, If P&C Insurance8 What drives the premium for a specific Project? (p1 of 2) – Construction and Maintenance Periods – Contractors' experience and record – Risk Management Programme – The Insurance Market's experience – Extent of Insurance Cover requested – Sums Insured / Loss Limits – Potential for Large Losses – Level of Deductibles

Anders Lindberg, If P&C Insurance9 What drives the premium for a specific Project? (p2 of 2) Exposure  Type of Project  Size of Project  Prototypes  Location Geology Nat Cat exposures  Third Party Driving parameters Potential for large and/or frequent Losses Capacity requirements Unproven design, technology and/or material Rock and Soil conditions Storm, Flood, Earth Quake... Capacity shortage! Urban projects e.g. underground systems

Anders Lindberg, If P&C Insurance10 The Insurance Market for Large Projects (p1 of 5) Capacity - Infrastructure Projects of special concern –Tunnels and Underground works –Bridges –Road Construction –Wet works e.g. Harbours –Off shore installations e.g. Wind Turbines, Sea Cables

Anders Lindberg, If P&C Insurance11 The Insurance Market for Large Projects (p2 of 5)

Anders Lindberg, If P&C Insurance12 The Insurance Market for Large Projects (p3 of 5) Large Losses - example Singapore MRT spring 2004

Anders Lindberg, If P&C Insurance13 The Insurance Market for Large Projects (p4 of 5) Public Projects - Special Insurance Problems Public tender regulations –Reservations and/or deviations may not be accepted Consequence –Insurance requirements as per the tender documents can not always be met by the Insurance Market The Reality –Capacity is available with few exceptions, but extent of cover, deductibles and premium to be negotiated and agreed

Anders Lindberg, If P&C Insurance14 The Insurance Market for Large Projects (p5 of 5) Policy Wordings - Special Conditions Major Risks / Exposures – Restrictions of Cover and Loss Limits may be imposed Long and complicated projects – Review Clauses Risk Management Requirements – To be mentioned specifically: A Code of Practice for Risk Management of Tunnel Works C ompliance with this code is or will be a prerequisite for insurance cover of tunnel projects in all major markets

Anders Lindberg, If P&C Insurance15 The Players in the Insurance Market Brokers, Insurers, Reinsurers and Loss Adjustors always look for:  Experience and know-how  Capacity  Satisfactory Financial Rating (Insurers and Reinsurers)

Anders Lindberg, If P&C Insurance16 Sources for further information –IMIA, the International Association of Engineering Insurers –Insurers’ and Reinsurers’ publications e.g. Munich Re, Swiss Re –The Insurance Institute of London: Report of Advanced Study Group 208B, CONSTRUCTION INSURANCE