Appraisal Of Insurance Policy In Indigenous Construction Companies In Nigeria

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Appraisal Of Insurance Policy In Indigenous Construction Companies In Nigeria


This research is carried out to appraise the insurance policy by indigenous construction companies in Nigeria, the main objective of the researcher is to give a concise analysis of the existence of their importance and the need of insurance policy in indigenous construction companies in Nigeria, The method of evaluation used were questionnaires administered and relevant literatures were reviewed. The finding of this research shows that deficiencies in the full implementation of the insurance policies and enforcement of the insurance act by indigenous construction and factors militating proper application of the insurance policies. It therefore recommends that the level of awareness of insurance services should be increased and government should control and monitor the implementation and enforce the insurance act.

Chapter One

1.0 Introduction

1.1 Background of the Study

Based on the appraisal of insurance policy by indigenous construction companies, they do away with anything that could breach their agreement as it is stipulated, especially things that can cause delay or abandonment of project. But never can tell, at the cause of the work in the site. The contractors can come across one problem or the other as a result of the accident, There has been a considerable interest in the concept of risk in recent years, with the perception that we live in a” risky society” for example, severe damage of mechanical plant or equipment, injury to workers, damage on constructed work and other circumstance that is beyond controls. However the need is obvious for every indigenous construction companies, to prepare themselves by registering with any of the insurance companies, in case of unforeseen circumstances like accident occurrences, damages on construction work.

The field of experience has shown that many indigenous construction companies and business organization are not aware of the relationship between indigenous construction companies and insurance companies, because of lack of information. The concept of this research is to bring out the point of emphasis on the benefit of insurance companies to indigenous construction companies. Moreover ,few construction companies among other were said to have relent in their obligatory effort to insure their, building project, properties because of in diligent attitude of insurance companies, this is because of the financial weakness of some of the insurance companies.

National insurance commission had force the insurance companies to increase their capital in other to meet up with the need of their policy holders. According to workshop held at muson centre Lagos recently, It is now mandatory for any development of project to be covered by insurance policy either small or complex project.

1.2 The Need of the Study

The importance of insuring properties during construction work need to be emphasized as this determine the success of a project, also the irregularities between the indigenous construction companies and the insurance policies need to be settled, now the need of the study will encourage the stake holder, the indigenous companies the need to insure their projects, properties and product, so that it will define the roles of insurance companies in any project execution in the country.

1.3 Statement of the Research Problem

The research intends to admit the following point,

  1. Why do some indigenous construction companies under take project development or execution without insurance policies?
  2. Why are indigenous construction companies suffering from delay in the payment of claims?
  3. Frustration in the insurance business on the part of the indigenous construction companies?
  4. Lack of awareness by the indigenous construction companies

1.4 Aim and Objectives of the Research

1.4.1 Aim

* The aim of this research is to appraise the benefit or importance of insurance policy to indigenous construction companies in Nigeria.

1.4.2 Objectives
  1. To identify the factors militating against proper application of insurance policies by indigenous construction companies
  2. To identify the types of insurance scheme commonly operated in indigenous construction companies
  3. To appraise the duties of insurance companies to indigenous construction companies.
  4. To examine the existing insurance policies.
  5. To assess the level of awareness of the insurance policies by indigenous construction companies

1.5 Methodology

In order to evaluate the efficiency of insurance policy to indigenous construction companies, there were review of related literature, Google, site visit, internet and articles, magazines, textbooks and journals used to provide some part of this write up. Also questionnaire will be sent to organization/companies to obtain practical data on the subject matter.

1.5.1 Data Collection

These are data specifically collected by the researcher for the purpose of the report.

Data where collected through the following sources:

  1. Direct personal observation
  2. Oral interview
  3. Telephone conversation
  4. Questionnaire
1.5.2 Analysis

Statistical method that were used to analyze the data include frequency distribution and simple percentage

1.6 Scope and Limitation

This study is limited to various insurance policies employed by indigenous construction companies in Nigeria with reference to the Jct form of contract. The research will cover Abuja FCT metropolis and it’s limited to indigenous construction companies in Nigeria.

1.7 Definition of Terms


Is defined as a contract whereby an insurer agrees, in consideration of the premium paid by the insured against loss of the happening of certain events (Barley 2002)


It’s an amount which is paid to insurance company by individual, indigenous companies to insure their properties or an amount which you pay once or regularly for an insurance policy, this amount can also be added to the basic rate.


Is a sum paid by A to B by way of compensation for a particular loss suffered by B .can also is seen as a means of protection against damages or especially in the form of promise to pay for anything that happened. An indemnity is a kind of insurance, in which payment is made (often in previously determine amounts) for injuries suffered, not for the costs of recovery. The indemnity payment is designed not to be a dependent on anything the patient can control. From the point of view of the insurer, the indemnity mechanism avoids the moral hazard problem of victim spending too much in recovery

Chapter Two

Literature Review

2.0 Introduction

The construction industry, which is vital to growth and development, is one of the oldest in the world, indeed as old as civilization it’s self. Construction activity forecast the general direction of an economy and for these reason, the industry is often described as a leading economic sector. These indicate the significance of construction industry across generation and developmental stages.

Nigeria construction sector account for 1.4% of its GDP despite the fact that growth has been observed in the construction sector output, it contribution to total GDP has remain at abysmally low level(1) in 1981,the construction sector accounted for 5.8% of Nigeria GDP in the last three decade.

Nigeria is away below realizing its potentials in construction industry despite huge deficit in infrastructure due to the inability of the government and insurance firm to assist the indigenous construction companies, Nigeria constructions companies is dominated by foreign companies in which most of the construction work are been undertaken by expatriate. This is due to deficiencies and in capability of the indigenous companies in area of financial effectiveness, innovation, dynamism among others

Risk Management Practices

Nigeria is a developing country currently focussed on improving her non-oil sectors – the construction sector inclusive. Nigerian corporate leadership is oriented towards performance improvement through continuous indigenous capacity building. The approach to realising this objective in the construction sector includes inter alia, attempts to indigenise foreign technology and management techniques such as risk management (RM), through the involvement of multinational construction companies in the local construction market (Amaeshi et al 2006).
Construction contracting is often regarded as a risky business, and researchers worldwide have severally focused on the management of construction industry risks (Öztas and Ökmen, 2003 and Odeyinka, 1999). In other words, Risks cannot be ignored; the success or failure of a construction project may be solely dependent on how well risks are managed. Construction companies are constrained by this reality and therefore continuously seek measures that will guarantee economic balance between project risks and opportunities (Thevendran et al 1998).

Project management literature describes a detailed and widely accepted risk management process (Klemetti, 2006). The uncertainty of a risk event as well as the probability of occurrence or potential impact should decrease by selecting the appropriate risk mitigation strategy. Walewski and Gibson (2003) categorized the risk mitigation strategies commonly used as follows:

  1. Avoidance – when a risk is not accepted and other lower risk choices are available from several alternatives.
  2. Retention/Acceptance – when a conscious decision is made to accept the consequences should the event occur.
  3. Control/Reduction – when a process of continually monitoring and correcting the condition on the project is used.

This process involves the development of a risk reduction plan and then tracking the plan. This mitigation strategy is the most common risk management and handling technique.

Transfer/Deflect – when the risk is shared with others. Forms of sharing the risk with others include contractual shifting, performance incentives, insurance, warranties, and bonds among others.

There is increased difficulty in forecasting the final results of a project (Project Management Institute (PMI, 1992), which implies that contractors cannot predict with absolute certainty that a project will end within their time and cost estimates. This underscores the global search for techniques, tools and procedures for risk management by most construction companies.

It was argued by Nworuh and Nwachukwu (2004) that the following sources of risks are predominant in construction projects; risks of error in estimating, risks of delay caused by client and his representatives, nominated subcontractors/nominated supplier; risks due to inclement weather, risk of clients financial failure, risk associated with cash-flow problems and risk associated with industrial relation. These risks and uncertainties are likely to be severe or even differ completely in a peculiar environment. A need has therefore arisen to better understand what contractors in these peculiar environments term risk and uncertainty as a prudent step to evaluate such risks and to stem their negative impacts on predefined projects objectives.

The value of systematic risk management of project activity is not fully recognised by the construction industry (Walewski, et al 2002). Since no common view of risk exists, owners, investors, designers, and constructors have differing objectives and this has led to common adverse relationships between the parties. Attempts at coordinating risk analysis management between all of the project stakeholders have not been formalised and this is especially true between contractors and owners.

Risk management involves four processes, namely:

  1. Risk Identification: Determining which risks are likely to affect the project and documenting the characteristics of each.
  2. Risk Quantification: Evaluating risks and risk interactions to assess the range of possible project outcomes.
  3. Risk Response Development: Defining enhancement steps for opportunities and responses to threats.
  4. Risk Response Control: Responding to changes in risk over the course of the project.

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This study makes important discoveries.

Out of all the insurance policies, CAR policy has become a mandatory insurance requirement. CAR policy covers most of the risks specified in projects. Client’s requirements and the Conditions of Contract are the most significant factors influencing the contractor to obtain a CAR insurance policy. Insurance companies and contractors should maintain a cordial relationship by means of active communication especially with underwriters, loss adjusters, etc. Contractors should implement maximum safety measures as a priority especially if it can be foreseen as a potential risk of damage. Properly assessed and deployed, the insurance policy as social instrument factor provides a valuable additional tool for determining insurance policy meaning and resolving coverage questions.


  1. Clients and contractors should make sure that their workforce is linked with an integrated supply chain management system.
  2. Clients and contractor should carry out effective supervision. In cases whereby the project is massive, they should seek for assistance of relevant professionals.
  3. Clients and contractor should see insurance schemes as tool for incentivising risk management practices up and down the supply chain.
  4. Clients and contractor are to ensure the best quality material as specified in the BOQ should be supplied to site.
  5. Contractors should always ensure that there is basic risk management training for the field workers and the technical staff.

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