Our view on dispute resolution and the proper use of dispute avoidance through dispute boards as represented by the Dispute Board Federation is quite straightforward. All disputes arising out of the performance of a construction project are likely to increase contract costs with the likelihood that some or all of these additional costs may be recoverable from Insurers. As such it is clearly in the interests of Insurers, including ACE to encourage a framework where disputes can be kept to a minimum and if they do arise to have in place an effective way to resolve them quickly.

 

 At the most basic level, Underwriters select and price a risk with the aim of ensuring that the portfolio they are writing will be profitable - i.e. the premium they receive will be more than the claims and expenses paid out.

A key challenge for Underwriters and a frequent demand from Risk Managers is that risks should not just be priced on the exposure that is being underwritten but on the likelihood of a loss arising under the policy. These are not the same thing and put simply, an Insurer should differentiate, in terms of price and possibly terms and conditions, between a risk that is well managed and one where there is little or no risk management on the part of the policyholder.

It therefore follows that an insured party involved in a contract where a Dispute Board or another robust ADR vehicle is mandated could reasonably make the case that such an arrangement is a valuable tool in its risk management kit and should be recognised by the insurer in the policy pricing and terms and conditions.

How can the Insurance Industry Help?

As a major stakeholder in the Construction Industry,  the Insurance Sector has an interest in promoting efficiencies and reducing frictional costs and activities that can negatively impact the economic benefits that flow from Infrastructure and Construction projects.

In the short period of time that that I have been a member of the DBF Advisory Panel, I have discovered that awareness of Dispute Boards and ADR within the Insurance Sector is quite limited. It is also not just a question of Insurers being aware of DBs; this knowledge has to extend to the brokers and indeed the Risk Managers of all companies involved in the Construction Industry.

In my opinion all parties will take the view that Dispute Boards are a positive development and should be encouraged. The extent and speed at which this happens will depend, among other things, on how clearly we are able to define and measure and this benefit. 
That is probably the subject for a subsequent interview.