The appointment of the insurance advisor is recommended on all projects procured using project alliancing. This is due to the likely high value of the project and the complexity of obtaining appropriate insurance.
The role of the insurance advisor is to support the process of putting appropriate insurance in place, including overseeing the process of selling the alliance's risks. It is important for the insurance advisor to be appointed after the procurement decision but before drafting the alliance Request for Proposal (RFP), so that:
• insurance is considered early in the project, helping alliances avoid making insurance decisions 'on the run' later in the process; and
• a best-for-state approach can be taken in the request for tender (which can also help in guiding subsequent commercial negotiations).
The objective of selling risk by obtaining insurance is the result of a deliberate judgement made on how to treat certain risks. Buying insurance is simply one of many different risk mitigation strategies that the alliance may adopt. When considering the insurance options available, it is important for the alliance to understand that insurance products are custom made in nature, and that there are substantial differences between products.
The effectiveness of an insurance product should be considered by comparing the underlying insurable risks and the scope of insurance coverage. Leaving aside considerations such as cost, the most effective insurance coverage is one that responds to the insurable risks, and this depends first on the ability of the alliance (and its insurance advisor) to adequately present its insurable risks. Second, it depends on the competency and expertise of the insurance broker to effectively 'sell' the insurable risks to the insurance market.
In assisting the Owner to 'sell risk' rather than buy an insurance product, the advisor's role recognises that insurance is not a product that can simply be bought off the shelf, but that the advisor can influence the insurance obtained for a project. The objectives of the insurance advisor would therefore be expected to include:
• assisting the government achieve an optimal insurance arrangement for the government and the project;
• assisting in managing and, where appropriate, driving down the costs of premiums by capturing and accurately presenting the risks of the project ('selling risk'); and
• assisting in obtaining the best scope of cover for the risks and the insured at a favourable premium.
The insurance advisor is also in a position to support the public sector Owner in the alliance member selection process. There may be valid reasons related to insurance that could influence the selection process. This may include factors such as claims history or views on the responsibility of insurance procurement (i.e. member-procured or project-procured).
The insurance advisor can be appointed either by selection from a pre-approved panel, or via a competitive tender process in line with that outlined for the appointment of third parties in Appendix G.
The advisor should be a person or organisation capable of performing the tasks outlined below. They should be familiar with the local and international insurance markets that underwrite project alliance risks. The advisor should be a member a relevant professional association such as the:
• Risk Management Institution of Australasia Limited;
• Australian and New Zealand Institute of Insurance and Finance;
• Institute of Chartered Accountants, Australia; and/or
• Institute of Actuaries of Australia.
(A government may have established an authority to act as its insurance manager. Agencies may consider appointing the government authority, if this possible, as the insurance advisor on a fee-for-service basis. See Appendix I.)
The Owner should appoint the insurance advisor, and initially the duties and obligations should be to the Owner. During the later steps in this process (such as steps 10 and 11, assessment and recommendation of the insurance program), the insurance advisor may also have duties and obligations to the alliance. The main tasks of the insurance advisor are to:
• identify the insurance requirements;
• assist in the Non-Owner Participant selection process;
• assist in selecting the insurance broker;
• advise on the underwriting submission;
• recommend insurance to the government and the alliance; and
• advise the government and the alliance on claims.
The appointment of the insurance advisor should be for the period starting from the procurement decision and continuing possibly during the defect warranty stage of the project.
The insurance advisor should be remunerated on a fee-for-service basis.