Insurance and Risk Management

Some risks can be insured. As Lock explains:
The financial impact of many risks can be offset by insuring against them (Lock, 2007, p. 107)
In his Project Management textbook Dennis Lock describes the risks can that must be insured, risks that can be insured and risks that are difficult or impossible to insure.

Risks that must be insured

Risk insurance
There are some risks that must be insured for either statutory or contractual reasons.

Statutory requirements that must be insured

statutory insurance - Insurance that the insured is required to buy under a country, state, or federal law (International Risk Management Institute, Inc.).
Statutory requirements will vary between countries, but an obvious example would be Employers' Liability Insurance or insurance on vehicles. To ensure insurance cover businesses or projects will need to comply with regulations, for example construction projects will need to comply with regulations around the inspection and certification of equipment.

Contractual requirements for insurance

Contract agreements will place obligations on the contracting parties to insure against risks. This will often be a contractual requirement to have particular liability insurances, like Employers' Liability Insurance or infingement of property rights. Contractual Liability insurance can be used to cover liability imposed on an entity by the terms of a contract.
Typical liablity insurances that may be contractually required:
  • property loss or damage
  • accidents
  • environmental damage
  • professional negligence

Risks that can be insured against

Contractors' all risks insurance

All risks insurance provides protection during the works [construction or engineering works], until the project is complete and handed over the the customer (Lock, 2011, p. 110).
Key features of Contractor All risks policies include:
  • Cover for damage to works
  • Cover for owned and hired machinery and plant
  • X months cover for contractual obligations after completion
  • Cover for professional fees
  • Employees' tools and effects

Decennial (latent defects) insurance

This insurance is designed to offset the financial cost of a defect in the design, materials or construction of a project. This insurance is known as 'decennial' because it can cover a period of up to ten (10) years. Decennial Liability insurance may be required by law for business or individuals subject to decennial liablity. As with Contractors' all risk insurance this insurance is often used on construction projects.

Accident and sickness insurance

Employers and projects can insure employees for travel, medical and personal accidents. Travel and medical insurance may be provided as an employee benefit or may be an expectation.

Key person insurance

Key person insurance is simply life insurance on the key person in a business. In a small business, this is usually the owner, the founders or perhaps a key employee or two (

Pecuniary insurance

This insurance is purely designed to cover financial losses from a wide variety of causes. For example:
  • fraud
  • legal expenses
  • corruption
  • interruption of business
  • burglary and theft
  • even kidnap and ransom

Risks that can't be insured

Some risk can't be insured - an insuror would refuse to insure the risk or the cost of the insurance would be extremely high.
  • Chances of loss are too high
  • Insurer can't quantify the risk
  • The insured would benefit from a claim
  • Insure can't spread their risk over other similar risks

Insurance and risk management references

Lock, D. (2007) Project Management by Dennis Lock 9 Rev edition (2007). 9th ed. Aldershot: Gower, p.188. Latest edition Project Management

2016 Entrepreneur Media, Inc. SMALL BUSINESS ENCYCLOPEDIA, Key Person Insurance,

2000-2016 International Risk Management Institute, Inc. (IRMI). IRMI Online > Glossary of Insurance & Risk Management Terms.

2015. Contractor's All Risks Estate Insurance Group Ltd

2016. Contractors All Risks. Allianz Insurance plc

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