“Silent Risks” Bassem Mesallam Vice President – Engineering Underwriting Oman Insurance Company

BM2 CONTENT  Implications of financial crisis on Construction Insurance  Typical triggers for interruption of works  Work Interruption – Three Scenarios  Risk assessment  Basic requirements for site protection  Salient features of standstill cover  Summary

BM3 IMPLICATION OF FINACIAL CRISIS ON CONSTRUCTION INSURANCE  Cancellation and postponement of orders  Suspension of ongoing projects  Negative growth of premium  Increase of loss ratio due to moral hazards  Difficulty in premium collection

BM4 IMPLICATION OF THE FINACIAL CRISIS ON CONSTRUCTION INSURANCE – Cont.  Shrinkage of reinsurance capacity  Reallocation of resources and expenses  Increased pressure on project costs (Contractors compromise on safety measures to save on cost)  Late payment by clients

BM5 TYPICAL TRIGGERS FOR INTERRPUTION OF WORKS  Failure of investors to fulfill their obligations  Cash flow and liquidity problems  Viability of the project as a result of changes in the economic environment  Work progress affected by disputes between the principal and a contractor  Project time schedule delayed by shortage of, or late delivery of material and equipment

BM6 WORK INTERRUPTION LEADS TO THREE POSSIBLE SCENARIOS Scenario 1 - Abandonment of the project Scenario 2 - Abandonment of the site Scenario 3 - Temporary interruption of the project

BM7 INSURANCE PERSPECTIVE  “Material Change in Risk”.  Cessation of insurance cover (General Exclusion “d”)  Immediate notice to Insurers (General condition no. 4)  Modification of terms (standstill cover)  Re-confirming continuity of cover  Informing reinsurers It is important to remember that

BM8 SCENARIO I - ABANDONMENT OF THE PROJECT EFFECT: Cancellation of the policy with final premium adjustment CHECK LIST: 6 W’s Principle  Written confirmation from the principal  Whether premium has been paid (in full or in part)  Whether any work has been carried out on the site  Whether any claim has been lodged under the policy  Whether any bank financiers/assignments are involved  Worth of the client

BM9 SCENARIO I - ABANDONMENT OF THE PROJECT – Cont. PREMIUM ADJUSTMENT: i) Partial work undertaken:  Time on risk  Value at risk  Loss experience ii) No work undertaken  Admin fees and expenses III) Reinsures’ agreement is must in case of fac placement IV) Each case shall be evaluated on its own merits

BM10 SCENARIO I - ABANDONMENT OF THE PROJECT – Cont. PROSPECT:  The project may still present an insurable value depending on the stage of completion  Suitable insurance options to be examined

BM11 SCENARIO II - ABANDONMENT OF THE SITE EFFECT: Policy cover ceases in line with General Exclusion No. d ACTION:  The project may still present an insurable value  Identify party with an ongoing insurance interest  Standstill cover to be provided

BM12 SCENARIO III - TEMPORARY SUSPENSION BY MUTUAL AGREEMENT EFFECT: Policy cover ceases in line with General Exclusion No. d ACTION:  The project may still present an insurable value  Standstill cover to be provided

BM13 PROJECTS FREQUENTLY AFFECTED BY SUSPENSION  Residential and commercial buildings  Civil engineering projects  Industrial buildings  Complex projects

BM14 CONSTRUCTION PHASES & RISK PROGRESSION

BM15 MAIN HAZARDS DURING STANDSTILL PERIOD Example: Commercial Building  Water  Fire  Theft, Burglary and malicious damage  TPL

BM16 SITE SURVEY  Stage of completion and estimated value of completed portions  Comparison of planned to actual progress  Water exposure  Drainage facilities  Windstorm exposure  Fire exposure  Fire-fighting facility  Exposure to theft or burglary  Third party exposure  Storage of material or equipment

BM17 BASIC REQUIREMENTS TO SITE PROTECTION  24 hours security  Fencing of site  Clearance of combustible waste material  Removal of highly inflammable and combustible material  Adequate fire fighting equipment  Installing safety nets around superstructures

BM18 SALIENT FEATURES OF STANDSTILL COVER  Cover is reduced from “all risks” to “named perils”  Standstill cover can be endorsed and extended at certain time intervals  Deductibles of the original policy are either maintained or adjusted  The SI must be monitored and adjusted in response to inflation and currency fluctuation  Any resumption of all risks cover is subject to a survey

BM19 SUMMARY 1. Material change in risk 2. Re underwriting 3. Terms and conditions for the silent risks are based on site survey SILENT RISKS ARE ALWAYS TAILOR-MADE SOLUTIONS

BM20 THANK YOU For more information please contact: Bassem Mesallam Te: