Commitments of operational insurance
The cost and availability of operational insurance invariably comes up during the bidding process, particularly on P3 (public-private partnership) projects with long life cycles. Projects of this size often need property and casualty coverage for 20 to 30 years, and are looking for predictable cost parameters for the first 3 to 5 years of operation, often with very specific and sometimes challenging dimensions.
Points of note:
- In any financial price risk – and that can be options on future cost/availability of insurance, interest rate risk, commodity price risk, etc. – there is an embedded cost to preserve capacity in the future. However, it's usually easier to commit capacity to property insurance or its component parts, like terrorism coverage.
- Casualty insurance is slightly more challenging. As ventures often don't maintain the sovereign immunity previously held by state agencies and must accept tort liability exposures on public works projects, the predictability of expected loss costs is much more elusive, and therefore, our ability to provide "option-like" pricing into the future is limited.
- Some brokers are developing operational insurance programs as companion pieces to P3 projects in certain jurisdictions. They may be worth researching.
- Using the same insurer(s) for both the operational and construction phases, particularly during the early years of operation, can generally result in better terms and continuity of key coverages.
Insurance products underwritten by Westport Insurance Corporation, First Specialty Insurance Corporation, North American Capacity Insurance Company, North American Specialty Insurance Company, North American Elite Insurance Company, Washington International Insurance Company, or Swiss Re International S.E. All subsidiary insurance companies are subject to a common S&P rating of AA- and AM Best Rating of A+ Class 15. Nonadmitted insurance products are available only through licensed surplus lines brokers and may not be available in all states.