Roads to freedom

The tactics of insurance companies are the most extreme form of commercial bullying. Just days before firms are about to renew their cover, they are told of massive hikes in their premiums. It makes no difference if they have traded for years without making a single claim. The insurance industry can pick and choose who and what it insures, and it knows that businesses have to cough up because, by law, they have to have employer's liability insurance and, commercially, they need a host of other policies.

Where insurers do have a point, though, is when they say that risk management is poor in the construction industry. This is a clear case of pot vs kettle, but all the same, the charge has merit.

The question is, can we manage our risks so well that we do not have to rely on insurance? The answer to this must be a resounding yes.

For example, the supply side must take a stronger stand against the widespread use of collateral warranties and the ridiculous requirement that consultants and contractors have to maintain professional indemnity cover for 12 years. I say ridiculous because this cover is given free, gratis and for nothing. If you want an extended warranty from Dixons you, the customer, will have to pay a substantial premium.

The industry's approach to risk management has traditionally been the "back-to-back" approach: all risk is passed from clients down to those firms on the bottom layer of the contractual pyramid. This approach to risk cannot even be regarded as risk management – it is risk dumping. There is even an assumption that regulatory risks, including health and safety, can be "dumped". If insurers are ever to view construction benignly, this state of affairs has to change.

The industry has traditionally passed all risk on to those firms at the bottom of the contractual pyramid – it is simply risk dumping

What is the alternative? The answer is in Sir John Egan's Rethinking Construction report, and, more recently, Accelerating Change. Delivery in the industry is dysfunctional, with discrete inputs that are not co-ordinated or integrated. The future is integrated project teams with established supply chains that provide business solutions for clients. This provides greater opportunities for equitable risk-share arrangements. partnering is not enough, particularly if it involves only a few players.

Accelerating Change recommends project insurance to underwrite a team rather than its individual members, as is common practice in France and Belgium. There are too many insurance policies in the industry underwriting the same risks and, as a result, we waste £1bn on policies that are not necessary.

Some "stick" is required. The Construction (Design and Management) Regulations must provide a structure that requires key players in the delivery process to minimise health and safety risks. Every building has a roof. So clearly the roofing contractor must be part of the team that is talking about the design of the roof with a view to minimising or eliminating the risks involved in construction. Sixty per cent of accidents on site result from decisions made before work begins.

Finally, the industry has invested in schemes of qualification for firms; many involve inspection regimes. It is high time that insurers discriminated in favour of companies that are members of these schemes. There is a strong precedent for this – the quality mark. Under this initiative, firms can secure a 20% reduction in premiums for employers' liability cover and public liability insurance. This discount is provided by the firm underwriting the quality mark warranty. Insurers and those in charge of reputable industry qualification schemes should now be talking about discounting to firms within these schemes.