25.4.1 It is generally not possible to place insurance to cover the full life of a Contract, although a single policy to cover a construction phase (extending over several years) can usually be arranged. By contrast, policies covering the operational phases of projects are generally renewable annually. In this case, where policies are renewable annually, there needs to be a mechanism to ensure that the insured amounts and deductibles specified in the schedule of required insurances increase over the duration of the Contract in order to keep pace with inflation.441 This is commonly done through an index-linking mechanism. Alternatively, it may be by agreement on expiry and renewal of policies.
25.4.2 Index-linking can cause a problem for liability insurance if it cannot be bought in odd amounts (e.g. £50, £51.15, £52.53 etc) although this is normally dealt with by rounding up annually to the nearest whole insurable amount.
25.4.3 The risk of increases and decreases in insurance costs should be borne primarily by the Contractor.442 Whilst there may ultimately be indirect protection (e.g. via indexation(see Section 15.2 (Inflation Indexation)), the Contract should not include any provisions which expose the Authority to direct pass-through of such extra costs, save as described in Sections 25.9 (Insurance Premium Risk Sharing Schedule) and 25.10 (Risks that become Uninsurable). Increases or decreases in insurance premiums which result from Authority changes (see Section 13 (Change in Service)) should be taken into account in any price variations resulting from the change in Service. The Contractor should bear any premium increases resulting from any change in Service it proposes (see Section 13 (Change in Service)).
25.4.4 In no circumstances should the Authority introduce benchmarking of insurance provisions into the Contract, or any other arrangements which have the same commercial effect. The appropriate price protection mechanism is set out in Section 25.9 below. This will operate in addition to the uninsurability protection set out in Section 25.10.
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441 This will not be necessary where the insured amount is an unspecified amount (e.g. the reinstatement cost of a property) rather than a specific sum (as is usually the case for third party liability cover).
442 This risk relates not only to increased premiums but also to increased levels of deductibles. See Section 25.10.1.