The value of Insurance to Contractors & Engineers

Contractors and Engineers render a very noble and crucial service to the community particularly the Government and its parastatals. However, a lot can go wrong at a job site even with proper safety precautions and protections in place. Therefore all businesses that work with building construction, heavy construction contractors, and specialty trade contractors can benefit from insurance.

Insurance may be described as a social device to reduce or eliminate risk of loss to life and property in general. It contributes a lot to the general economic growth of the society by providing stability to the functioning of process. The insurance industries develop financial institutions and reduce uncertainties by improving financial resources and stability.

Quite often when people are asked who in their opinion needs insurance, some of the sample answers would be: ‘The rich’, for they have lots of assets to protect.’ While others would say: ‘Business Men and Women’, who have businesses and property at Risk. Well, both those answers are correct due to the fact that property and businesses are always exposed to risks which if not protected could cause serious financial setback to the owner, the employees and the Government at large (loss of Tax).

However, the broader picture is that we all need insurance protection depending on our circumstances to mitigate risks and losses or liabilities ruing from our area of operation and profession.

For instance, with the increasing competition from the Big players in the construction Industry and the quest for global standards, it will not be long before Government enforces some mandatory minimum coverage to protect both the public and the professionals against exposing themselves to liabilities that could curtail their services which is called The Contractors All Risks Insurance. The construction industry has several service providers who subcontract others thus contributing to the reduction of unemployment in the country. It is very likely that in a bid to ensure continuity of such sectors, the Government would put measures in place to prevent them from collapse or closure due to liability risks that are insurable.

Low Insurance Penetration

One of the main reasons as to why the insurance penetration is low in Uganda is “The Perceived Cost”. Many presume Insurance to be expensive and unnecessary, but this is far from true. Take for instance the above mentioned Contactors All Risks; this class of Insurance can be as low as 0.3% of the sum insured. In other words, when working on a project that is valued at 1 billion shillings, an insured contractor would pay 0.3% of the contact value and be covered for the loss incurred. That would amount to 3 million shillings as cover for losses up to 1 billion shillings.

Another reason for the low Insurance penetration is “Poor Claims Payment”. This is one of the common perceptions about the Insurance Industry as a whole. Many business owners and members of the public believe that when they file a claim, the Insurance companies toss them around and make them jump through hoops in order not to pay them. Admittedly some companies indeed do that and ruin the reputation of the company however; the industry is regulated by the Insurance Regulatory Authority to which such cases can be reported. These cases are shrewdly followed up by the Authority and payments are always made where the Insurer is deemed to be in the wrong.

Types of Insurance for Engineers and Contractors

There are various classes of Insurance from which Engineers and Contractors can benefit. Some of these include:

Directors and Officers (D&O) Liability Insurance. This is insurance coverage intended to protect individuals from personal losses if they are sued as a result of serving as a director or an officer of a business or other type of organization. It can also cover the legal fees and other costs the organization may incur as a result of such a suit. Directors and Officers liability insurance is in line with corporate governance, corporate law, and the fiduciary duty owed to stakeholders, such as shareholders and beneficiaries.

Public Liability Insurance; sometimes referred to as Commercial General Liability Insurance. This type of insurance may protect the construction business from a person’s or business’s claims of bodily injury, personal injury, and/or property damage. Business owners may be legally responsible if another person is hurt or if their property is damaged while at the business or because of something done by the owner. Make sure the business is properly protected against risks or accidents. General Liability Insurance coverage protects businesses against claims by others of bodily injury or damage to their property.

Workers compensation Insurance protects employees and businesses from work-related accidents, illnesses, and even death. Employers must have insurance to cover medical costs and lost wages for workers who are injured or become ill on the job. If a company does not carry workers compensation insurance, it could be liable for these costs, and be subject to fines or penalties as per the Workers Compensation Act of 2000.

Workplace injuries happen even in the safest of workspaces. Even if an employee has health insurance, the business is responsible for their medical costs if they suffer a job-related injury or illness. In addition, the worker is entitled to a percentage of their regular wages during the time that they are unable to work due to their injury or illness. These costs are covered by workers compensation insurance.

Financial implications of not insuring

If a company does not have insurance, it will have to pay these costs out of pocket.

1. Provide safety and security:
Financial support and reduced uncertainties in business and human life are provided for by Insurance. It provides safety and security against particular event. There is always a fear of sudden loss. Insurance provides a cover against any sudden loss. For example, in case of life insurance financial assistance is provided to the family of the insured on his death. In case of others insurance security is provided against the loss due to Fire, Marine/Goods in Transit, Personal Accidents, Accidental Damage and loss, Burglary/Theft etc.

2. Spreading of risk:
Insurance facilitates spreading of risk from the insured to the insurer. The basic principle of insurance is to spread risk among a large number of people. A large number of persons get insurance policies and pay premium to the insurer. Whenever a loss occurs, it is compensated out of funds of the insurer.

3. Generates Financial Resources:
Funds collected through insurance premium are invested in government securities and stock. These funds are gainfully employed in industrial development of a country for generating more funds and utilized for the economic development of the country. Employment opportunities are increased by big investments leading to capital formation.

4. Promotes economic growth:
Insurance generates significant impact on the economy by mobilizing domestic savings. It turns accumulated capital into productive investments. Insurance enables to mitigate loss, financial stability and promotes trade and commerce activities those results into economic growth and development. Thus, insurance plays a crucial role in sustainable growth of an economy.

5. Medical support:
Medical insurance is considered essential in managing risk in health. Anyone can be a victim of critical illness unexpectedly. And rising medical expense is of great concern. Medical Insurance is one of the insurance policies that cater for different type of health risks. The insured gets a medical support in case of medical insurance policy

6. Life insurance encourages savings:
Insurance does not only protect against risks and uncertainties, but also provides an investment channel too. Life insurance enables systematic savings due to payment of regular premium. Life insurance provides a mode of investment. It develops a habit of saving money by paying premium. The insured get the lump sum amount at the maturity of the contract. Thus life insurance encourages savings.

The value of Insurance

Large funds are collected by the way of premium. These funds are utilized in the industrial development of a country, which accelerates the economic growth. Employment opportunities are increased by such big investments. Thus, insurance has become an important source of capital formation.

As an Association, it would be beneficial to have all registered and licensed members take advantage of these covers under the umbrella of the Association for ease of monitoring and administration or to encourage various individual members to take variety policy covers for their business

This insurance can be arranged with individual and group limits per event and an aggregate limit of cover that may be agreed upon between the Association and the Insurer.

We as Statewide Insurance Company Limited (SWICO), a member of this association have many Insurance Products that can be tailored to meet your particular circumstances in the event of such liability, Contractors Liability Insurance (CAR) that covers much of the projects under taken by the Contractors, since it covers employees under Worker’s Compensation, Machinery Break down, Contractual works and all kinds of Risks and it is needed at the contract signing as a fall back for the Government (Principal) in cases where projects back fire.

We continue to impress as “Your Preferred Insurance Company.”