How does delay-in-start-up insurance work?

As Tom Wylie – head of construction at Zurich Global Corporate UK – explains: “There has been a general perception that some clarity was required around how the cover is intended to work, how policy wordings are written, and how policyholders and lenders understand the product.

“For example, there has been a misconception that DSU policies respond when there is a delay, when in fact the policy responds only when that delay is solely attributable to damage covered by the material damage section of the policy.”

As with so many insurance sectors, one of the key problems with DSU products is communication between client, broker and insurer.

“An important element of DSU insurance is establishing the cause of a delay in the event of a potential claim,” says Wylie. “In order to establish whether there was an indemnifiable loss, insurers need access to the most up-to-date construction schedule available prior to the occurrence of the delay event.

“Theoretically, this would appear to be straightforward. However, there have been examples where insurers have been unable to obtain this information for up to 18 months following the event.

“This leads to frustrations among all the stakeholders, particularly the policy beneficiary – leaving clients with the impression that the cover is of little, if any value.”

To avoid these difficult situations, proactive insurers such as Zurich are introducing DSU monitoring. “this takes the form of a clause in the policy wording that requires the policyholders to regularly provide the most up-todate version of the construction schedule in its native software format.

“This will mean that, in the event of a delay event, coverage and quantum can be established more quickly and more accurately,” says Wylie.

“Additionally, when we have transparency of the schedule, we are then able to assist clients with a delay-mitigation strategy to keep the project on schedule and help alleviate the effect of the delay when it occurs.”

Programme monitoring is used in tandem with another Zurich strategy, known as risk engineering.

“Our engineers make regular visits to the project site,” says Wylie. “Part of this is about protecting the interests of the panel of insurers, but it is also about adding value to our clients by highlighting the benefit of our experience from visiting other projects around the globe.

“The visits focus on construction methods, quality control and assurance, health and safety and industry best practices”.

The insurance market has a vested interest in getting the DSU product right.

“We see risk engineering, and, in particular, the programme monitoring, as part of this process,” adds Wylie. “We believe the potential outcome is a happier customer, whose expectations are better managed – and, most importantly, if a delay event occurs, we are able to ensure that it affects the project as little as possible.

“If a delay is attributable to an insurable risk, then we can say: ‘this is the quantum of the delay, this is how long it will take to fix,’ and the whole process will be less adversarial.

“With all due respect to the legal profession, let’s keep the lawyers out of this!

“If we can be clear and transparent about what the product is, and how and when it will respond in the event of a claim, then that can only be of benefit to all stakeholders.”

This article was first published in StrategicRISK’s Construction Report, published in association with Zurich. To download a copy of the full report, click here