PROPERTY TRANSACTION GUIDE

Cost Experts Explore Relevance In Insurance Bond
By Bamidele Ogunwusi, Correspondent, Lagos

Independent, Monday, 3rd August 2009

Officials of the Lagos State chapter of the Nigerian Institute of Quantity Surveyors (NIQS) have stated that the organisation is ready to work with the Nigerian Insurers Association (NIA) and its members towards providing valuable propositions that will sustain business and customers' satisfaction across the country.

Chairman of the chapter, Mr. Jide Oke, stated this last Thursday when he lead the executive council of the chapter on a visit to the Governing Council of the NIA at its headquarters in Lagos.

"Our coming is to seek for ways of partnering with you and also to foster relationship with the aim of looking for ways where we could be of assistance to one another," Oke stated.

He added that the institute had looked at the services offered by members of NIA and identified two key areas where the two bodies could work together and provide added value to the services they both offer. These areas are Insurance Bond and Insurance Act 2003.

One of the key areas according to Oke is Insurance Bond, adding that the institute had reviewed the effectiveness of bonds in minimising the rate of default on construction projects and has come to realise that the absence of Bills of Quantities of the projects among the requirements demanded is considered a serious omission which should be looked into by the insurers.

His words: "The Bills of Quantities complement the Letter of Award usually presented by contractors as the contract sums of the projects are derivable from the Bills".

On the Insurance Act, Oke said the institute had observed that usually insured sums of public buildings for the insurance purposes are derived from market value, adding that the figure obtained is usually inadequate for the purpose of indemnifying the insured.

"Rather than basing this on market value, which treats value as a function of market rates of property in a location, the actual claim should be based on replacement cost for the property being insured and the objective of insurance is reinstatement or indemnification, it is our candid opinion that for insurance of public buildings, appropriate costing through replacement cost valuation prepared by a qualified quantity surveyor is required by insurance companies to give proper effect to the intents of the Insurance Act 2003. It is only through the provision of such Bills of Quantities that actual cost of rehabilitation or reconstruction/renovation can be determined, and not through market value," Oke added.

He called on the Governing Council of the NIA to help stem the growing cases of defaults by contractors with Performance Bond from insurance companies, pointing out that in addition to award letters usually submitted as part of requirements for obtaining bonds from insurance companies, Contract Bills of Quantities prepared, signed and sealed by a registered quantity surveyor should also be submitted by contractors.

He said "With this new introduction, our insurance companies can be assured that the rates inserted in the bills, as well as the contract sum on the award letter, are real and adequate for the successful completion of the projects so guaranteed. Otherwise, the incidence of abandonment and defaults by the contractor is certain. So also is the exposure of the insurance companies to avoidable risks, usually when bonds are called."

NIA Chairman, Mr. Wole Oshin, said the body was ready to collaborate with the NIQS and promised to look at the proposals and see how it can be of help.

Executive Vice Chairman of Industrial and General Insurance (IGI), Remi Olowode, said that there is the need for a joint meeting where issues of mutual interests will be discussed.

An insurer, Prof Joseph Irukwu, said the body was working with a committee to review insurance laws and policies and that all the requests by the quantity surveyors would be sent to the appropriate committee for consideration.