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Engineering insurance: highly specialised field

Infrastructure development is booming across Africa, due in no small part to significant economic growth and foreign direct investment. Mega-infrastructure projects have massive price tags however, with equally large insurable risks. There are tremendous opportunities for the engineering insurance sector, but also challenges projects of this magnitude require a high level of underwriting expertise and special technical knowledge to effectively mitigate risk.

Mega-projects such as dams, transport infrastructure, mining operations and renewable energy projects and plants some of which are valued at up to R70 billion are in progress all over Africa. There has been an influx of global construction companies operating on the continent, in all construction sectors, despite investment flows into new projects slowing slightly on the back of poor world commodity prices.

For example, in Mozambique, the Nacala Airport Project, currently in an early development stage, is likely to spin off several peripheral development projects in hospitality, retail, education and manufacturing. Large mining concessions (VALE and Rio Tinto) are already in operation in northern Mozambique, with many South African companies providing specialist services and capital goods.

In Zambia, there are currently three large trans-border projects at various stages of development:

  • The North-South Rail Corridor which links Zambia and the Democratic Republic of the Congo to South Africa
  • The Serenje-Nakonde Road Project, which runs for 614km from Nakonde in Muchinga province to Serenje in Central province
  • The Chingola-Lobito Corridor Rail Project, which links the port of Lobito in Angola and Zambias new north-western copper belt.

In Botswana, large infrastructure development projects include:

  • The Trans-Kalahari Corridor Project, a road and rail development linking Namibia, Mozambique and South Africa through Botswana
  • The Kazungula Bridge Project, an expansion of the Kazungula bridge to handle north-south road and rail traffic into Zambia and relieve pressure on the Beit Bridge border post
  • The Mmamabula Project, a new coal field development including the construction of a 600MW power station in south-eastern Botswana.

These are but three countries that have embarked on huge infrastructure development drives. Some of these projects are financed by government, such as Botswana, which finances most of its own projects from diamond mining revenue, but other countries have sought public-private solutions for infrastructure projects.

Providing engineering insurance to mega-infrastructure projects in a highly competitive international market is no mean feat. To ensure long-term sustainability in this competitive market, providers must have an in-depth understanding of the risks involved and be equipped with extensive knowledge and experience. Engineering underwriting has become a highly specialised field of insurance.

The expertise required from a specialist insurer will differ from project to project, but may include:

  • Engineering all risk, construction all risk, project liability insurance
  • Specialised commercial property insurance
  • Marine cargo and transit insurance
  • Travel insurance targeting commercial clients
  • Aviation insurance targeting helicopters and light commercial aircraft
  • Project guarantees for advance payments received by contractors and project performance guarantees.

Convenience and appropriate risk identification are vital when placing cover for complex mega-projects. Projects of this size are extremely complex cover may be required for public liability, professional indemnity, marine insurance, contract works, project delays, assets, travel insurance and riot cover, for example. And clients dont necessarily want to deal with a number of different insurance parties and risk gaps in cover.

The idea is that an insurance solution should cover all the bases via a single touch-point the client, whether the insured or an intermediary. For example, Santams underwriting management agency (UMA) and the largest engineering underwriter in Africa Mirabilis Engineering Underwriting Managers has introduced a Seamless Specialist Insurance solution covering comprehensive risk protection for mega-projects across Africa, literally from cradle to operational.

Through the Seamless product the first of its kind in Africa Mirabilis covers all aspects of a project by distributing comprehensive cover and manages the entire process from policy issuing to claims handling and processing. Most of the Mirabilis senior managers are experienced engineers the team thus has highly specialised knowledge and a deep understanding of engineering insurance.

In South Africa were heavily represented in renewable energy projects, similarly in Zambia (general electricity generation and mining). In the DRC we are invested in mining, in Mozambique and Ghana its oil and gas. In Zambia and the Congo we are partnered in large bridge and road projects. Across all other nations, its general infrastructure such as dams, rail, hotels and office properties.

The growth potential for specialist lines of insurance such as engineering across Africa, is decidedly optimistic. Many of the specialist insurance placements for large projects are currently taken by offshore syndicates, however, to the detriment of the local market. To develop local economies, we need premium to remain in these countries. For this, we need local insurance providers with a commanding African presence companies with underwriting managers who are experts in their respective fields, with a keen focus on entrepreneurial and big-thinking ideas.

By Karl Bishop, head: Niche Business at Santam

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