1.0 INTRODUCTION 1.1   Background of Study

Construction industry is subjected to different types of risk such as project, financial, construction risks etc. Other risks include theft, vandalism, accidents and building collapse (which can lead to injury to workers and third parties). These can have adverse effect leading to stoppage of works, abandonment of project, financial difficulties to contractors and failure of clients to realise the project goals(Hansen, 1990). Performance of the industry is also affected by poor risk management when compared to other industries (Renuka, Umarani and Kamal, 2014).

One of the major risk management approaches in construction is the provision of insurance cover which is the exchange of a certain amount of fixed payment to protect the interest of the parties involved (Bunni, 2003). Insurance does not only help to transfer risk but also help to recognise potential risk and reduce the probability of its occurrence by taking coverage which reflects efforts at risk prevention (Perera, Rathnayake andRameezden,2008).

Insurance is also important to the construction industry and policy holder as it replaces insecurity with security and stability (Nwite, 2014). Most insurance policies are contracts of indemnity for a contractor which distinguishes them from performance bonds (Odeniyi, 2006). Bonds according to Robert and Andrew (2010) are ways of redistributing risks associated with construction projects. A performance /bank bond is used in construction as a means of insuring a client against the risk of a contractor‘s failure to fulfil its contractual obligation. Bonds can be issued either by a bank or an insurance company (Designing Buildings, 2017).

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