The importance of liability insurance in the construction industry

Abstract

Both the construction industry and the insurance industry are two prominent industries in the Maltese market. In spite of this, the link between the two industries is fairly unknown to the general public. This study seeks to provide a view of the relationship between the two sectors and the importance of having insurance when carrying out construction projects. The standard insurance cover provided is put in plain words. Construction policies tend to be made-to-measure. The foremost reason behind this practice is that each project insured has its own processes and risk exposures. Thus, one policy common to all projects would not be adequate. Nonetheless, companies such as Munich Re, the largest reinsurance company in terms of gross premiums written (AM Best, 2010); provide standard policies which insurance companies can make use of. The Munich Re policy wordings are also the main policies used in this study. Being a deleterious demanding physical work, injuries to employees or damages to third parties are not an implausible thought. One simple mistake can lead to an array of accidents leaving huge amounts of damages that would need to be paid by the contractor (Goldhammer, 2010). Thus, insuring such risks, which contractors are continually exposed to, can be seen as essential in making the project safer. Akbiyikli, Dikmen and Eaton (2012) remark that insurance cannot be seen as an alternative to effective risk management; it only transfers the risk and does not avert the loss. Currently in Malta, there are no liability policies required by law except for motor insurance. The general findings of this dissertation show that the local insurance market agrees that at least third party liability insurance is to be made compulsory at law.