• International Journal of Technology (IJTech)
  • Vol 12, No 1 (2021)

Insuring Project Risks: Contractor Expectations versus Insurance Company Policies

Insuring Project Risks: Contractor Expectations versus Insurance Company Policies

Title: Insuring Project Risks: Contractor Expectations versus Insurance Company Policies
Jati Utomo Dwi Hatmoko, Pertiwi Kusuma Astuti, Sani Nur Farania

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Cite this article as:
Hatmoko, J.U.D., Astuti, P.K., Farania, S.N., 2021. Insuring Project Risks: Contractor Expectations versus Insurance Company Policies. International Journal of Technology. Volume 12(1), pp. 90-100

Jati Utomo Dwi Hatmoko Department of Civil Engineering, Faculty of Engineering, Universitas Diponegoro, Jl. Prof. Sudarto SH, Tembalang, Semarang 50275, Indonesia
Pertiwi Kusuma Astuti Department of Civil Engineering, Faculty of Engineering, Selamat Sri University, Kendal 51351, Indonesia
Sani Nur Farania Department of Civil Engineering, Faculty of Engineering, Universitas Diponegoro, Jl. Prof. Sudarto SH, Tembalang, Semarang 50275, Indonesia
Email to Corresponding Author

Insuring Project Risks: Contractor Expectations versus Insurance Company Policies

Risks are inevitable during the construction phase of a project. In particular, contractors may respond to the project risks by accepting, avoiding, mitigating, or transferring the risks to other parties. This study aims to explore the use of insurance as one of the risk response mechanisms by contractors. Data were collected through observation of project documents and semi-structured interviews with contractors from five construction projects and four insurance companies. This research identified 42 risks, which are categorized into three levels: 26% low, 48% moderate, and 26% high. Of these, the contractors expected only 20 risks (48%) to be insured, whereas the insurance companies considered only 19 risks (45%) insurable. The risks were mapped on a four-quadrant matrix based on a combination of contractors' expectations for insuring or not insuring project risks, and the insurance company policies against those risks. The matrix revealed that 12 (29%) risks were ideal (insured-insurable), 7 (17%) were overlooked (uninsured-insurable), 15 (36%) were considered reasonable (uninsured-uninsurable), and 8 (19%) were categorized as critical (insured-uninsurable). These findings serve as a reference for the construction industry stakeholders in decision-making related to project risk management.

Construction projects; Contractors; Insurance; Insurance companies; Risks


The construction industry is commonly associated with greater risks compared to other industries due to its unique characteristics and complexity (El-Sayegh and Mansour, 2015; Liao and Chiang, 2015). Failure to manage risks can adversely affect project performance in terms of cost, quality, and completion time (Famiyeh et al., 2017). Therefore, risks need to be appropriately identified, assessed, monitored and administered to ensure the project’s course is maintained (PMI, 2017).

The literature classifies project risks as site-related, natural disaster, human, labor-related, material, construction operations, project environment, health and safety, political and regulatory-related risks, and financial risks (San Santoso et al., 2003; Shehu et al., 2014; Khodeir et al., 2015; El-Sayegh and Mansour, 2015; Jarkas and Haupt, 2015; Hidayatno et al., 2015; Wu et al., 2017; Dang et al., 2017; Famiyeh et al., 2017; Shrestha et al., 2017; Nguyen et al., 2018; Sundoko et al., 2018; Siraj and Fayek, 2019; West et al., 2019; Issa et al., 2020; Adafin et al., 2020)Such structured risk classification may contribute to the effectiveness and quality of the risk identification process and create a better understanding of the nature of the risk sources (Bu-Qammaz et al., 2009; Banaitiene and Banaitis, 2012; Lekan et al., 2019). Project stakeholders need to understand and identify risks early to implement an appropriate response strategy to minimize the possibility of negative impacts (Wang et al., 2004). The use of construction insurance is considered an effective way of transferring risks and protecting projects from losses (Wang et al., 2004). Jiang et al. (2019) stated that the success of complex projects is highly dependent on construction insurance.

This study aims to explore the use of insurance as one of the risk response mechanisms by contractors. The objectives are to identify risks and conduct qualitative risk analysis, to investigate contractor expectations on the use of insurance for project risks, to identify policy of the insurance companies against the risks, and to map the gap between contractor expectations and insurance company policy.


This study aims to explore the use of insurance as one of the risk response mechanisms by contractors using five construction projects and four insurance companies as case studies. Of the identified 42 risks in 11 categories, 26% distributed as low-, 48% as moderate-, and 26% as high-level risks, 48% of which the contractors expected to insure, although the insurance companies considered only 45% insurable. To map the identified risks, this study generated an IdOvReC matrix based on a combination of contractor expectations and the insurance company policies.

The results of this study are expected to provide information on the use of insurance in construction projects and the gaps that between what is expected to be insured and what the insurance company may consider insurable. Although the data was obtained from five reviewed projects and the views of four insurance companies, the results are expected to represent the general views of both sides. However, as each project is unique and insurance products continue to evolve according to market dynamics, the real implementation may vary in accordance with the particular construction project or insurance company. Nevertheless, these results can be used as a reference for stakeholders in the construction industry in making decisions related to project risk management. Further research can be done by developing quantitative models of the relationship between the patterns of risk events that occur in projects and the claims in insurance companies. This can help deepen the understanding of the real implementation of construction project insurance.

Supplementary Material
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