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Munich Re
The new Athens airport, a BOT project
(computer model).
Increasingly, two basic models are
being used for the private-sector
financing of major engineering
projects:
With the BOO model (build, own,
operate), the state in which the
major project is located awards a
concession to an international
construction and financing
consortium to finance, build and
operate the plant or structure.
In the case of the BOT model
(build, operate, transfer), the
consortium agrees to transfer
ownership of the plant or structure
to a local operator after an agreed
operating period of 10 to 25 years
at a contractually fixed residual
value or the saleable value at that
date.
These models and possible mixed
forms (e.g. involving the participation
of construction and
operating firms from the customer
country) give rise to a very longterm
risk for the usually international
industrial consortia.
As far as the construction phase is
concerned, demand is growing for
tailor-made advance loss of profits
(ALOP) insurance to supplement
the contractors’ all-risks (CAR) and
erection all-risks (EAR) insurances.
ALOP covers are designed to
minimize financial losses that may
arise from delays in the start of
operations as a result of indemnifiable
material damage.
When the operating phase begins,
there is a seamless transition
from these covers to the classic
lines of property insurance such
as fire, machinery and electronic
equipment insurance. These are
often complemented by business
interruption insurance for losses
following fire or machinery
breakdown. Public liability
insurance and environmental
liability insurance complete the
insurance cover of the enterprise
and its private investors by
protecting them against third party
claims.
The insurance of major engineering
projects requires careful risk
assessment, expert control through
inspections during the whole
period of the cover and highly
specialized risk-related know-how
for fixing prices and conditions and
for handling claims. Particularly
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An increasing number of combined-cycle
power stations, financed and insured as
BOO or BOT projects, are being built
worldwide to generate power using natural
gas.
valuable for the client, as well as
its insurers and their reinsurers,
is the active involvement of
experienced engineering insurance
specialists throughout – from the
design stage, through the
construction phase, to actual
operation. Drawing on experience
with losses involving comparable
risks, these specialists make
expert recommendations for loss
prevention and minimization,
particularly for fire protection and
for controlling the on-site risks
from natural hazards (earthquake,
windstorms, floods). This was
the case, for instance, with the
construction of the Petronas
Towers in Kuala Lumpur.
Especially in Asia, but also in
Latin America and Africa, rapid
population growth is giving rise
to infrastructural needs on a
scale that requires international
cooperation in the fields of engineering,
finance and insurance.
Such cooperation is the only way
of satisfactorily realizing, within a
reasonable time, such projects
as the expansion of energy
production and distribution, the
necessary structural improvements
in road, water and air transport,