Construction Risk Analysis Tool for Determining Liquidated Damages Insurance Premiums: Case Study

Abstract

Construction work is often a risky undertaking for all parties involved, and risk management is essential in dealing with potential exposures. One of the possible options in any risk management approach is the shifting of designated potential risks to financially strong institutions, which, for an agreed premium amount, are willing to assume the financial responsibility for any loss incurred. This paper presents a case study and a methodology for determining the expected loss to an insurance company when insuring for liquidated damages. It is directed to engineers and construction managers faced with providing a surety or owner with a quantification of the risk associated with a project completion date.