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1.4.5 Insurance Requirements and Uninsurable Risks

A risk originally insurable (at the inception of the contract), and for which a requirement to be so insured has been included in the contract, may become uninsurable during the life of the contract. Unless specifically imputable to the private partner, this risk (of becoming uninsurable) should not be borne by the private partner. Instead, it is good practice that a contract provides for the ability to change the specific insurance requirement or for an automatic waiver of that specific obligation.

A risk may still be insurable but at prohibitive premium. This is usually handled under the benchmarking approach to insurance costs, so that when the total premium exceeds the cap exposure (for example, 100 percent of additional costs above the cost baseline), the authority may decide, at its discretion, to remove the specific risk insurance requirement. In this case, it should include a payment to the government by the partner of the amount saved (or a deduction of that amount from the payments).

When a benchmarking system for sharing risk of the insurance premium is not in place, the contract should establish at least a provision for specific risks that may be regarded as uninsurable when the premium for the risk reaches some defined extraordinary threshold.

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