Munich Re, RIB develop IT-based insurance for construction risks

Munich Re’s risk know-how and RIB’s iTWO Technology are being combined to form what is being called the first global IT-based insurance product for large construction projects that covers elements of unplanned increase in construction cost.

Munich Re and RIB have signed an exclusive agreement to jointly develop the product, which is targeted at project owners, notes a statement issued Monday by Munich Re.

Citing global studies, Munich Re reports the range of unplanned increases in construction cost is in the order of 20% to 30% of the overall project building cost. “Investors fear the uncertainties related to a large number of inherent construction risks: insufficient planning may have a material impact on costs and deadlines during the construction process,” the statement notes.

It is argued that by using RIB technology, the risk of such an increase in construction cost can be reduced significantly.

RIB’s new IT technology divides the construction process into two phases: virtual construction and physical construction. During the first phase, all processes, interfaces, time aspects and costs are made transparent; the second phase starts only after successful completion of the first.

Munich Re explains that the virtual construction phase serves as the basis for the insurance cover, which mitigates risks related to cost and time elements and provides investors with more cost certainty.

As well, the statement notes, the IT-based insurance product provides the client with predefined financial protection in the case of an actual unplanned increase in construction cost at the end of the construction period.

Providing maximum of transparency in the design and execution of construction projects seeks to mitigate the risk of an unplanned increase in construction cost, says Thomas Wolf, chairman and CEO of RIB Software AG. “In the case of adverse occurrences during the construction phase, it provides financial protection by indemnifying an amount of such cost. It will help governments and investors to manage the risk of cost overruns in future,” Wolf says of the product.

“Risk transparency, risk mitigation and risk transfer are key elements for investors in their desire to achieve a high degree of cost certainty for their investments,” suggests Christoph Hoch, chief underwriting officer engineering, Corporate Insurance Partner, Munich Re.

By combining Munich Re’s risk know-how and RIB’s IT and construction expertise, Hoch says “we are thus able to offer risk transfer for certain risks that were not previously insurable. We are confident that owners, developers and investors will benefit from this new insurance solution.”