Expert Risk Articles

Tunneling Insurance - a Code of Practice

A series of tunneling claims in the 1990s caused huge problems for tunneling insurance and led to the development of the Tuneling Code of Practice. Allianz was closely involved in the nearly 10-year process of developing the Code, and it was worth the effort. This article was written in 2005 as it reached completion. 

When a tunnel section and a 30-storey building above it collapsed during the construction of a new subway in Shanghai in the summer of 2003, it was only one in a series of major claims that has alarmed the insurance industry in recent years. "Tunnel construction is one of the riskiest insurance fields," explains Ronan Gallagher, head of the civil engineering team at Allianz Global Risks in Munich. "When an accident occurs, it often reaches catastrophic proportions."

This was the case when a tunnel in Munich collapsed in 1994, a bus broke through the road surface and three people died. The same year a tunnel caved in during the construction of the new subway from the center of London to Heathrow airport. The damage cost EUR 150 million. In November 1999, the ground collapsed during the construction of a sewer in Hull in north-east England, costing the insurer over EUR 60 million. The cost of claims has reached such dimensions in recent years that the insurance industry began asking itself whether tunnel projects will be insurable at all in the future.


Ronan Gallagher: "Tunnel construction is one of the riskiest insurance fields."

In the fall of 2001 the British Insurance Association turned to the British Tunneling Society (BTS) to find a common way out of this dilemma. An international team then toiled for two years on risk management guidelines in tunnel construction. The team included representatives from Allianz Global Risks (AGR), Gerling, Swiss Re, Zurich, SCOR, ERC Frankona, Munich Re and Royal & Sun Alliance. The results were presented by both sides in the fall of 2003 – the Joint Code of Practice for Risk Management of Tunnel Works.

"The problem in this particular area is that there is no typical claims scenario," says Ronan Gallagher, who was heavily involved in writing the code. "The causes for any problems that arise can be so diverse that assessing the risk is extremely difficult." Gallagher believes that a lot depends on the experience and care that is taken by the parties concerned – from planning and geological explorations to actual construction. Safety guidelines now lay down a precise risk assessment procedure for all project stages.

In order to reduce risks to a reasonable level, the Code of Practice must be incorporated in international tunnel construction policies in the mid-term with an option for the insurer to cancel a policy if the agreement is not adhered to. In the past, reports Gallagher, the contract stipulations weren't specific enough and didn't take relevant safety standards into account.

Whether the tunnel code is a way out remains to be seen. However, a similar safety guideline for fire prevention, the Joint Fire Code, has proven to be a blessing, according to the insurance industry, and has led to a marked reduction in fires on construction sites.

"You'll never be able to rule out accidents completely of course," says Gallagher. "But we can ensure that we have a calculable risk profile even in tunnel construction and that, when an accident does occur, our entire portfolio isn't jeopardized."