Integrated project insurance

Integrated Project Insurance (IPI) is an innovative insurance product which gives the IPI model its name. Essentially the model creates transparent project conditions that incentivise shared responsibility and as a result can combine such aspects as latent defects, cost risk, professional indemnity insurance, contractor build insurance and client risk, into a single integrated project insurance.

It collectively insures the client and all the other Alliance partners: consultants, specialists, manufacturers, construction managers and their supply chains. In particular it replaces liability-driven professional indemnity insurance (which requires proof of fault before responding) with financial loss cover where the out turn cost above the target cost plus pain-share is insured.

IPI is only available as part of the IPI Model which is founded on the principle of a new and transparent partnership with insurers. In granting cover the insurers will have had regard to the following fundamental principles which the Alliance members (including the client) intend to comply with when undertaking the project:

• The Alliance members embrace fully integrated collaborative working and act in a spirit of mutual trust and co-operation at every stage of the project and comply with the alliance principles agreed in the Alliance contract.
• There are mutual no blame/no claim undertakings; and whatever percentage share you take of gain, the same must be your share of pain.
• All decisions are taken on a “best for project” basis.
• There is independent facilitation and financial/technical independent risk assurance at all stages of the project.
• The performance of the Alliance members will be measured against agreed success criteria.
• The Alliance members will work on an open book basis and seek ways of driving down costs and maximising gain-share by over-achieving against the success criteria.
• There will be no distinction or barriers between the design and construction elements of the project as all members will be working as a single integrated team.

In parallel with the Alliance members and their supply chains waiving rights to claim against each other, the insurers waive rights of subrogation against all the insured at every tier.

Under the IPI model the emphasis is on collective and transparent governance:

• When the IPT (Integrated Project Team) is satisfied that its preferred project solution and target cost will meet the strategic brief in accordance with the success criteria and within the pre-agreed investment target, it puts it forward for approval.
• The IF (Independent Facilitator) , and TIRA (Technical Independent Risk Assuror) and FIRA (Financial Independent Risk Assurer), if respectively satisfied that the IPT is indeed collaborative and that its preferred project solution and target cost have adequate allowance for technical and financial risks, give endorsement to the client and insurers.
• When accepted by the client and insurers, this project solution and target cost are insured under the IPI Policy, and the TIRA/FIRA appointments are novated to the insurers.
• The IF and TIRA/FIRA remain involved and engage openly and collaboratively with the IPT during design development, procurement, construction and completion/proving. If the IPT does not adequately resolve issues of concern raised by the independent assurers, the assurance team reports to the Alliance Board and, if they are still not satisfied with the solution put forward, have the right to recommend to the insurers that the associated risk be excluded from coverage under the policy. This exclusion may relate to the target cost up to completion or the latent defects cover thereafter.

By virtue of the involvement of the IF, TIRA and FIRA, insurers have a close project relationship under the IPI Model. In essence they can have confidence based on independent expert advice that:

• The members of the IPT and their supply chains are suitable.
• They are adopting behaviours which will result in the efficient use of resources.
• Project solutions and target costs provide adequately for technical and financial risks.
• A realistic and achievable project execution plan is being followed.
• Out turn costs are necessarily incurred.
• They will receive early alerts to problems and potential overspends, and can participate in decisions over mitigation.

In return, insurers are prepared to agree a wider range of cover than under traditional project policies; they have an overview of all potential risks, and are in a better position to understand them. IPI insurers have been carefully selected by the brokers; their contracts are subject to utmost good faith; and they are expected to recognise and fund overspends promptly after they have been identified and verified by the FIRA.

Until the IPI product is fully established and a much simplified integrated format can be developed, the IPI policy comprises:

• Section 1: Construction All Risks (including Terrorism Extension)
• Section 2: Third Party Liability (including Non-Negligent Liability)
• Section 3: Delay in Completion (resulting from damage under Section 1)
• Section 4: Financial Loss cover
• Latent Defects cover (for 12 years) – a “no fault” commercial latent defects insurance policy.

This use of known products is seen as an advantage in the early days of IPI as those who will benefit from the cover are better able to relate to the protection they are used to seeing.

The “financial loss” cover under the IPI policy has an agreed cap (limit of insurers’ indemnity), and its exclusions are limited to ‘normal industry exclusions’ which are:

• Nuclear and war risks and sonic bang.
• Wilful default.
• Employer’s (client’s) risks.
• Change of law.
• Any other specific exclusions relating to the particular circumstances of the project (e.g. MOD security issues).

Under the IPI Model each Alliance member participating in the gain-share/pain-share mechanism in the Alliance contract knows that their loss is limited to their pre-agreed share of the maximum pain-share. The benefits deriving from this policy should ensure that all parties concerned are open and honest about their allowances (usually in overheads) for omnibus insurances, and exclude them from the build-up of their target and actual overhead costs for the project so as to avoid cost duplication.

Under a study undertaken for the then Office of Government Commerce the combined premium cost of traditional construction all risks, public liability and professional indemnity insurances on a commercial development throughout the supply chain amounted to 2.5%. This was based on normal risks, and excluded excesses. The cost of IPI has been fixed at 2.5% of the project cost, which is better than cost-neutral because it also includes:

• Independent facilitation and technical/financial risk assurance.
• Cost overrun cover (instead of professional indemnity).
• Latent defects cover.

It also saves the cost of taking out collateral warranties. There is therefore no cost penalty for a client adopting IPI.

For completeness: due to its inherent variability, the study excluded insurances associated with feasibility or pre-project planning activities. The essential pre-initiation activity under the IPI model includes the assistance and support to the client in selecting and appointing the members of the Alliance and securing their understanding and commitment to the strategic brief and success criteria: this variable element is covered on a time-charge basis. The 2.5% fee then commences with a pre-inception instalment, with the balance payable upon inception of the IPI policy; because locality is also variable, fees are subject to reimbursement of expenses.

This article contains public sector information licensed under the Open Government Licence v2.0. The text is from Section 5, The Integrated Project Insurance (IPI) Model, Project Procurement and Delivery Guidance, 2 July 2014.

[edit] Related articles on Designing Buildings

• Collaborative practices.
• Collateral warranties.
• Environmental Impairment Liability (EIL).
• Insurance.
• Integrated project insurance BIM Roadmap.
• Integrated project team.
• Integrated supply team.
• Latent defects.
• Office of Government Commerce.
• Owner-controlled insurance.
• Professional indemnity insurance.
• Supply chain.
• Target cost contract.
• Two stage open book.

[edit] External references

• The text is from Section 5, The Integrated Project Insurance (IPI) Model, Project Procurement and Delivery Guidance, 2 July 2014.
• https://ukgbc.org/resources/integrated-project-insurance/