Investigating The Effectiveness Of Insurance As Risk Management Tool In Construction Industry

Investigating The Effectiveness Of Insurance As Risk Management Tool In Construction Industry

Abstract

The nature of construction business is threat clued . utmost forms of construction contract honored the use of insurance as threat operation tool. Many studies still, evaluates its effectiveness as threat operation tool. This study delved the efficacity of insurance in bridling pitfalls in construction design delivery. The objects were to identify insurable pitfalls in construction design delivery, identify current insurance programs in the construction assiduity, and to determine their position of use. Survey questionnaire were administered to 220 targets in the guests, contractors, and advisers organisations and insurance companies in Akwa Ibom state. Data analysis involved descriptive statistics and Relative Important indicator. The findings revealed the five most significant insurable pitfalls in the construction assiduity as injury to person, injury to property and heavy rain, fire, poor construction system and poor point operation practices. farther findings revealed the most significant insurance programs in the construction assiduity are bid bond, contractors all pitfalls insurance, performance bond, motor insurance and third party insurance. The position of use of these insurance programs is still veritably low and their effectiveness supposed acceptable to address construction pitfalls. To promote increased relinquishment of insurance in construction threat operation, mindfulness of the benefits must be propagated to the common sphere.

Chapter One

Preface

Background to the Study

No construction design is threat free. Every construction design, large or small, involves pitfalls with varying impact. The construction assiduity is subject to further threat and query than numerous other diligence( Flanagan and Norman, 1993). The process of taking a design from original investment appraisal to completion, and into use, is complex. It requires a multitude of people with different chops and interests and the collaboration of a wide range of distant, yet interrelated conditioning. similar complexity also, is compounded by numerous external, willful factors. threat may hamper the successful completion of a design by causing time and budget over-run, and/ or quality dereliction.

Construction insurance is used as a collaborative term to describe colorful types of programs to cover construction workshop, construction and operation of ministry. Traditionally, it’s assumed to be only limited to the construction stage. still, the design is a whole life process, which includes a feasibility study, a call for tender and evaluation of tenders, an award of contract, construction and construction phases, and a take- over and conservation period. numerous experimenters( Palmer, 1996; Bunni, 2003) bandied all possible insurance programs during the whole design process to make an overall picture of construction insurance.

The Oxford Advanced Learner ‟ s Dictionary( 1995) defines threat as the “ chance of failure or the possibility of meeting peril or of suffering detriment or loss ”. In construction systems, a threat may be defined as the liability of a mischievous event being to the design. Since the objects of construction systems are generally stated as targets established for function, cost, time and quality, the most important threat in construction is failure to meet these targets. Within the compass of operation and decision proposition, exploration in construction and design threat operation began in 1960 ‟ s( Guilin, 2004). threat operation is defined as a set of styles and conditioning designed to reduce the disturbances being during design delivery( Skorupka, 2003). It can also be defined as the structured set of processes aimed at relating, assaying and responding to design pitfalls. It includes maximizing the results of positive events and minimizing the consequences of negative events( PMBOK Guide, 2000). According to Gray( 2000), threat operation is a visionary approach rather than reactive. It’s preventative process designed to insure that surprises are reduced and negative consequences associated with the undesirable events are minimized. Successful operation of design threat gives the design director better control over the future and can significantly ameliorate chances of reaching design objects on time, within budget and meeting needed specialized( functional) performance.

Insurance is a threat transfer fashion of passing the responsibility of pitfalls to another party. pitfalls can be transfer either through constricting or by insurance which changes an uncertain exposure to certain cost. Transferring threat doesn’t inescapably reduce the effect the threat would have or the liability of its circumstance but only passes the responsibility to another party. From the legal standpoint, insurance allocates the pitfalls to which the design is exposed, between the parties. Dickson( 1983) stressed insurance as a threat transfer medium that the insured transfer from a state of query to a state of certainty at the certain cost of the insurance decoration. It’s a cost- smoothing medium, in which contractors change a regular given periodic decoration for an unknown implicit loss. This study investigates the felicitousness of insurance as a threat operation tool in the construction assiduity.

Construction insurance is a practice of swapping a contingent claim for a fixed payment to cover the interests of parties involved in a construction design. Construction insurance is a major system of managing pitfalls in the construction assiduity. Its primary function is to transfer certain pitfalls from guests, contractors, subcontractors and other parties involved in the construction design to insurers to give contingent backing in time of difficulty. Construction insurance plays an decreasingly important part in guaranteeing the success of systems, with insurers participating losses performing from natural disasters and other contingencies. Insurance is, of course, only one means of managing pitfalls associated with systems. It needs to be put into environment and understood that not every threat can be ensured against, ensured against adequately or ensured for a price that’s respectable. As stated in the statement of problem, construction insurance doesn’t admit the attention it deserves as a result of lack of proper pitfalls operation practices in the construction assiduity. The exploration sought to identify insurable pitfalls and the types of insurance generally involved in the Nigerian construction assiduity. The study is anticipated to contribute in raising the mindfulness of the insurable pitfalls and programs which project actors are exposed to, in construction contracts. It provides a tool for decision- making in contract conformation especially in insurance programs.

Statement of the Problem

The provision of insurance is generally considered important and indeed in the event of a major loss, the insurance may be the only feasible means of repaying financiers or icing that the Project is back on track. still paradoxically, infrequently does insurance admit the attention it deserves, either within the overall environment of the deal or in the detail of the interaction between the drafting of the construction contracts. Also interpreters occasionally don’t have a clear understanding of threat allocation and the strategy of threat operation through insurance. This can affect in claim difficulties which can accordingly affect the design in different ways, similar as increase in design cost, completion time of the design as well as quality.

It’s important to understand the extent of the insurance contract before contractual terms are perfected to avoid circumstances where pitfalls have been assumed grounded on the wrong hypotheticals of a party’s capability to gain particular insurance at a commercially respectable price( or at each). This is of particular concern in the current climate where insurance decorations are higher; programs contain numerous limitations and rejections.

Exploration Questions

The following exploration questions are set- out to guide the study

· What are the insurable pitfalls in construction design delivery?

· What types of insurance programs can be used in the construction assiduity for effective pitfalls operation?

· What’s the position of use of linked insurance programs in the construction assiduity?

Aim and objects of the Study

The main end of the exploration was to conduct an disquisition into how insurance is used as a threat transfer tool in the Nigerian construction assiduity with a view to perfecting insurance uptake. The objects of the study include to

· identify the most insurable pitfalls generally involved in the construction design delivery;

· assess the types of insurance programs generally used in the construction assiduity;

· determine the position of use of linked insurance programs in the construction assiduity

Compass of the Research

The study concentrated on insurance as a threat operation tool for the construction assiduity in Akwa Ibom State. The construction assiduity in Akwa Ibom State have witnessed colorful complex high threat systems in the last Six times including Pile Jack Underground Drainage Systems and numerous other five star systems. It’s limited to insurance companies, contractors within the state capital and public sector guests substantially Ministry of Works and Ministry of Housing and Urban Renewal.

Organisation of the Research

The exploration was organised in Five( 5) Chapters. Chapter one handed the preface and background to the problem. This was followed by a review of literature on threat operation and construction insurance in the alternate chapters. The third chapter stressed the exploration methodology and data collection system. Analysis of the exploration results was bandied in chapter four while conclusions and recommendations were captured in chapter five.