ASSESSMENT OF BUILDERS’ RISK INSURANCE IMPLEMENTATION IN THE NIGERIAN CONSTRUCTION INDUSTRY
Generally, there have being low patronage of insurance by construction industry.Builders‘ Risk Insurance (BRI) is a policy that provides coverage for risks that occur during construction of buildings. The desired benefit of BRI to the stakeholders would only be attained if the policy is successfully implemented. BRI policy is relatively new and the level of implementation in the Nigeria construction industry is yet to be assessed. Therefore, the study was aimed to assess the implementation of BRI policy in the Nigerian construction industry. The focus was on the level of awareness, compliance, enforcement and barriers to implementation of the policy. A mixed method research design was adopted which includes both quantitative and qualitative research methods. The quantitative method involved the use of questionnaires in which 118 questionnaires was designed and administered to construction companies and 26 questionnaires was administered to insurance companies. The construction companies were selected using convenience sampling and a census was taking for insurance companies. The qualitative method involved the use of interview which was conducted with National Insurance Commission and Federal Capital Development Authority. The Questionnaire data collected was analysed using percentile, mean score to rank and Kendall‘s Coefficient of Concordance (Kendall‘s W) to test level of agreement from both companies on compliance and barriers militating against implementation of the policy. The interview data was analysed using content analysis by stating the highlights of the interview conducted as only one person were interviewed in both organizations. The study found out that the level of awareness on BRI is moderate with 51.05%. The study also found out that the level of enforcement of BRI by NAICOM is low. BRI certificate is not yet a requirement checked by FCDA before approval of construction work. The level of compliance by construction and insurance companies is moderate based on 0.55 agreement level. Inconsistent Government policy with Mean Score (MS = 4.27), ineffective implementation and enforcement strategy (MS = 4.18), unstable economic condition (MS = 4.12) and poor attitude towards insurance services (MS = 3.81) were ranked among the top barriers to the implementation of the policy. The study concluded that the level of awareness and enforcement is inadequate.The level of compliance is moderate. Therefore, a framework for enhancing implementation of BRI is been proposed.
1.1Background of Study
Construction industry is subjected to different types of risk such as project, financial, construction risks etc. Other risks include theft, vandalism, accidents and building collapse (which can lead to injury to workers and third parties). These can have adverse effect leading to stoppage of works, abandonment of project, financial difficulties to contractors and failure of clients to realise the project goals(Hansen, 1990). Performance of the industry is also affected by poor risk management when compared to other industries (Renuka, Umarani and Kamal, 2014).
One of the major risk management approaches in construction is the provision of insurance cover which is the exchange of a certain amount of fixed payment to protect the interest of the parties involved (Bunni, 2003). Insurance does not only help to transfer risk but also help to recognise potential risk and reduce the probability of its occurrence by taking coverage which reflects efforts at risk prevention (Perera, Rathnayake andRameezden,2008).
Insurance is also important to the construction industry and policy holder as it replaces insecurity with security and stability (Nwite, 2014). Most insurance policies are contracts of indemnity for a contractor which distinguishes them from performance bonds (Odeniyi, 2006). Bonds according to Robert and Andrew (2010) are ways of redistributing risks associated with construction projects. A performance /bank bond is used in construction as a means of insuring a client against the risk of a contractor‘s failure to fulfil its contractual obligation. Bonds can be issued either by a bank or an insurance company (Designing Buildings, 2017).
Builders‘ Risk Insurance also referred to as Construction All Risk is a specialized type of insurance that covers damages done to building while under construction or renovation (Adeleke, Tai, Esan andBuari, 2013). It does not cover any incidence when the building is completed and handed over. Hence it is just one part of an overall insurance coverage for the construction industry (Glen and Clark, 2005). Most countries have enacted laws and regulations on insurance of construction works, generally referred to as Builders‘ Risk Insurance (BRI).
However, the nature of hazards that Builders‘ Risk Insurance provides coverage for varies from one country to another. In countries like UK, Singapore and Australia, Builders‘ Risk Insurance covers for public liability, non-negligent liability, third party liability and delay in start-up (Ace andChubbs, 2016), and in Nigeria, the regulation is relatively new and covers for the earlier mentioned risks and workers liability as provided in the Insurance Act 2003. Rodriguez (2015) stated that Builders‘ Risk Insurance generally provides coverage for damages due to building collapse, fire, theft, vandalism, and lightning.
In the Nigerian construction industry, cases of building collapse, theft and vandalism have been recurring and has become a major concern in the development of the nation. Their occurrence involve loss of lives, properties and money which can affect productivity and morale of workers (Oseghale, Ikpo and Ajayi, 2015).It was established through a pilot survey that in the last 10 years, the casualties of building collapse have been very high which put the figure at 3,210 persons and other construction work related risks such as theft, accidents are also common occurrence (SON, 2019). It was also established that the buildings under construction were not insured according to the Insurance Act 2003.
Construction activities entail a lot of risks and these risks can lead to permanent or temporary stoppage of works, delay in completion and financial constraints on the contractors when not properly taken care of or addressed. The Builders‘ Risk Insurance is one of the recent legislations provided to address the negative consequence on the contractor and clients. Therefore, this research is intended to assess the implementation of Builders‘ Risk Insurance policy in the Nigerian construction industry with regards to compliance, enforcement and challenges of the policy.
1.2 Statement of Problem
The Nigerian Insurance Act 2003 provides guidelines for various types of insurance coverage required for any business including construction business. Studies have shown that generally most businesses are reluctant to take up insurance policies despite the benefits they offer (Elendu 2013). There is also low patronage of insurance by construction industry as construction insurance has not been given the attention it deserves (Odeniyi 2006; Liu, Bingguang andJiong 2015). Adeleke et al., (2013) established that Builders‘ Risk Insurance is very relevant and adequate for the construction industry which became mandatory in recent years as a result of losses occurring during construction. The regulation governing BRI is relatively new in Nigeria and implementation is expected to grow over time. No studies have so far assessed the implementation of BRI policy and there is inadequate information about implementation of BRI policy in the Nigerian construction industry. Therefore, a study should be carried out to assess the implementation of BRI policy in the construction industry to reduce the aftermath suffering and loss construction risk comes with.
1.3 Justification of the Study
The need for this study cannot be overemphasised because it would help to identify areas of improvement to ensure full implementation of Builders‘ Risk Insurance policy as enforcement of regulations is important in ensuring efficiency and effectiveness in the rule of law (Ayantoye, 2015).
BRI can help to mitigate the consequences of unwanted hazards and accidents that result during construction. The successful implementation of the BRI policy will help to improve safety among construction workers, protect the environment by providing adequate measure that helps improve sustainability, generation of revenue for the nation through the companies, achieving public goals and protection of the general public in and around the areas of built environment. This is largely dependent on the level of awareness, compliance and enforcement of BRI by construction industry. This study therefore assessed the implementation of BRI in the Nigerian construction industry.
1.4 Aim and Objectives
The aim of this research is to assess the implementation of Builders‘ Risk Insurance policy in Nigerian construction industry with a view to enhancing implementation of Builders‘ Risk Insurance.
The objectives of the study include;
To assess the level of awareness of Builders‘ Risk Insurance among stakeholders.To ascertain the level of enforcement of Builders‘ Risk Insurance by the development and regulatory authorities.To assess the level of compliance with Builders‘ Risk Insurance policy by construction companies.To identify the barriers militating against compliance and enforcement of the
Builders‘ Risk Insurance.
1.5 Scope and Limitations
This study is focused on the Builders‘ Risk Insurance policy as stipulated in the Insurance Act 2003. It does not cover other type of property insurance. It targeted construction companies, insurance companies, Federal Capital Development Authority (FCDA) and National Insurance Commission (NAICOM) within Abuja metropolis.
The study area is chosen for this research because of the high concentration of construction activities in the area. Also, Abuja being the capital of Nigeria there is more likelihood of adherence and enforcement of provisions of laws compared to other parts of the country.
Only building projects are considered for the study, and are 2 floors/ storeys and above constructed or under construction in the last six years because when a law is enacted, time is required for it to be implemented hence the six years. The level of awareness was assessed from construction companies on the provision of BRI. Assessing compliance involved both the insurance and construction companies while the enforcement level was assessed from the perspectives of NAICOM and FCDA which are the regulatory and development authorities respectively.
Simple random sampling was initially planned. However, convenience sample was resorted to for two reasons; lack of cooperation of some selected companies that havebeen drawn from the sampled population and unavailability of some selected companies at their indicated address. Only one person was interviewed from each organization (NAICOM and FCDA) so a detailed content analysis could not be done.
ASSESSMENT OF BUILDERS’ RISK INSURANCE IMPLEMENTATION IN THE NIGERIAN CONSTRUCTION INDUSTRY
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