Risk management in the insurance industry: insights for the engineering construction industry

Malik Ranasinghe

Construction Management and Economics, 1998, vol. 16, issue 1, 31-39

Abstract: A probabilistic framework is developed to analyse a risk management approach adopted by an insurance firm. The analysis shows that when the insurance firm classifies a client as 'superior' and 'most acceptable', the probability of the insurer having to pay out on those claims is negligible. Even for a policy that is classified as 'acceptable', the highest probability of a claim is only 12%. When the probability of a claim is over 50%, the client is considered to be 'unacceptable' for an insurance policy. Based on that analysis, the insights that the engineering construction industry can gain from risk management in the insurance firm with respect to project duration and cost are highlighted. It is shown that, in responding to risks and uncertainty, the engineering construction industry should not allocate contingency at a predetermined probability of success for global variables such as project cost or duration as suggested in the literature, but at the input level. It is suggested that the predetermined probability of success value to allocate contingency at the input level should be at least 70%. Then, the contingency available for project cost and duration can ensure a high probability of success in the completion of the project.

Keywords: Risk Management; Insurance; Engineering Construction; Target Cost; Contingency (search for similar items in EconPapers)
Date: 1998
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/014461998372565 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:conmgt:v:16:y:1998:i:1:p:31-39

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RCME20

DOI: 10.1080/014461998372565

Access Statistics for this article

Construction Management and Economics is currently edited by Will Hughes

More articles in Construction Management and Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().