Insurance as Risk Management Tool in Building Construction Projects: A Case of Debre Marḳos Town, Amhara Region

Abstract

Construction insurance is a wise move for managing the risk in the construction industry. The construction business is not risk-free, but the global commercial premium coverage is very small compared to overall commercial insurance premiums. Construction insurance practices in Ethiopian construction, generally, is not at a practical level but at opinion level, There is a huge awareness gap on construction insurance policies from both construction stakeholders and insurance companies’ sides,Tthere was a knowledge gap in the insurance industry about the construction work, and there was also an attitude by construction firms that paying premium is unnecessary cost due to the less emphasis they give to insurance. At the same time, the fact is the premium that insurance companies currently demand is not expensive. This study focused on construction risk management through insurance practices of building construction stakeholders involved in ongoing building construction projects in the Amhara region of Debre Marḳos Town. The research is significant in constructing insurance's issue to change construction stakeholders' attitudes to show insurance requirements in construction projects. The study data were collected through a questionnaire survey and interview with the construction contractors, consultants, , clients and insurance companies to gather appropriate information on the construction risk management practice of stakeholders (clients, contractors, and consultants) involved in building construction projects concerning Construction insurances. The descriptive statistics method was used to analyze the collected data by determining frequencies and percentages using SPSS 23 software and Microsoft Excel to figure out the output. As major findings, there were different risk management practices. In construction insurance, 74.6% of stakeholders performed risk management matrix analysis before selecting risk mitigation strategies. The most important reason for risk analysis in building construction stakeholders did risk analysis mainly to decrease claims and disputes among parties(29.9%; and to be better prepared for uncertainties(34.3%). However, 42.11% of clients did risk analysis to transfer risk through contract conditions rather than risk transfer through insurance. Contractors had a better experience using insurance as a risk management tool in building construction projects than the other stakeholders. The 59.7% of stakeholders risk analysis method identified major risk factors and quantified their impact subjectively. Also, 59.7% of stakeholders had a reasonable understanding of the importance of relevant construction insurance policies, while the 44.8% of the stakeholders' challenges were poor risk analysis and management practice. Based on this study's findings, it is recommended that clients develop risk analysis habits before selecting any one of the risk mitigation strategies. The stakeholders should practice analysis of likelihood (probability) of the risk occurrence and risk’s severity or its consequence on the project for better risk management in building construction projects; change their attitudes on insurance, improve risk analysis and management practice to be insured reasonably. Insurance companies should support their customers rather than try to avoid risk with the help of their attorneys