In today’s vibrant and economic world characterized by unprecedented uncertainties, insurance has become an important practice in the construction industry. With the increasing pace of technological advancement, many contractors have been forced to display high levels of construction techniques in the industry in order to attract many business opportunities. However with the changing nature of the environment, uncertainties and risks seem to hinder core construction activities in the industry. The resulting implications have occasioned gigantic losses both to the contractors and their clients. This dissertation is aimed at exploring the insurance responses shown by construction firms in the industry in their attempt to reduce their exposure to inherent risks in the industry
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Insurance is a term that refers to an equitable transfer of risk of loss from one business unit to another with an exchange of a premium to possibly reduce the adverse effects of that loss thereof in the event of risk occurring. Insurance has increasingly become an effective tool for managing risk in the construction industry. The modern construction work is sophisticated and requires contractors to make technical and professional decisions. However, with increased competitive pressures mainly triggered by a firms’ quest to incorporate new and expansive modern technological equipments, contractors often find themselves making wrong decisions thereby causing huge unexpected anomalies in the construction.
Professional indemnity insurance therefore accords engineers and contractors protection by indemnifying them against their legal liability to damages caused to third parties arising from their negligent actions and omissions perpetrated during the period in which they undertake their professional duties. It is a cover that lasts for one year and is intended to cover the firm only. Contraction work performed may fail to meet the client’s requirement specification and hence decide to lodge a complaint against such works. Professional indemnity ensures that the company’s reputation is not damaged by undertaking to compensate clients who feel that the company has not met their needs.
Background of the study
Construction industry is one of the major contributors of economic growth in each and every country. The dissertation attempts to look at risk as being among the factors prominently mentioned to deter prosperity in the construction industry. Most developed economies are characterized by robust infrastructure, magnificent estate development and property management. This can only take place when the operations and activities in the construction industry have been streamlined through capitalization and provision of adequate commercial auxiliary services like insurance. In fact, insurance remains a big pillar in the construction industry.
Relevance and significance of Insurance in the Construction industry
Construction is an industrial work in nature. It is widely known that industrial works are risky in nature. Contractors are exposed to dangerous activities that can easily claim their lives, cause damage to property and equipment or inflict an injury to any third party. Insurance therefore significantly reduces these risks through compensation in the event that the risk occurs. It is therefore perceived that insurance ensures business continuity in the construction industry.
Aims and objectives of the study
The aim of the study is to analyze the impact of different insurance policies and looks at diverse covers available to engineers and contractors in the construction industry. The study therefore tends to examine both existing and emerging new insurance policies in the construction industry and whether they are of importance in the current economic situations. The objectives of the study are;
- To demonstrate the use of current insurance policies in the construction industry.
- To scrutinize the provision of different insurance covers in the construction industry.
- To find out the impact of insurance in the construction industry.
- To evaluate the benefits of insurance in the construction industry.
The rationale of the study
The basis of the study is to look at the gap between insurance as a commercial practice and construction. Many construction firms are still reluctant to insure their organizations. As a result there has been a large public outcry as to the role of insurance in the construction industry and therefore the study aims to correlate insurance and construction as an activity.
The study is based on examining the impact of insurance in the construction industry. But before, it is important to understand the concept of principles of insurance and different policies that may be relevant to employees, contractors and firms in the industry in order to develop a clear picture in the industry.
The impact of insurance in the construction industry
- Insurance has ensured continuity of business in the industry through compensation in the event that a major risk occurs. Constructions firms together with contractors as well as ordinary employees are assured of continuity after a major loss.
- Construction firms are able to undertake promising but risky investments decisions which would otherwise not have been taken in the absence of insurance.
- Professional indemnity seems to protect the firm’s reputation in the event that engineers accidentally breach any professional construction contract in the course of their professional duty.
Problem statement; the problem here is to find out the magnitude of the loss that comes as a result of firms’ reluctance to insure their businesses. The dissertation aims at the impact of different insurance packages available to employees, contractors and company in the insurance industry. (Ranasinghe 2008) This can be discovered through the following research questions;
- Can this research be used to embrace insurance in the construction industry?
- Are the results appropriate in explaining the different insurance policies to the workers in the construction industry?
- Greater use of insurance will lead to increased construction services.
- Insurance will make contractors to enter into risky construction activities.
Construction industry is dynamic in nature and consists of many risky activities. Insurance is the only way in which construction firms can be encouraged to undertake these activities. At the same time, a company must work with speed to ensure that they don’t incur heavy losses when there are insurance firms to mitigate adverse business losses.
List of References
Ranasinghe, M January 2008, Risk management in the insurance industry: insights for the engineering construction industry, Construction Management and Economics, Vol 16, no.1, pp. 31-39