A key feature of infrastructure project finance is the
allocation of risks among the numerous parties involved. Commercial
insurance is one of the most important risk management tools for
project finance, to which both project sponsors and lenders should
look to allocate risks to a third party.
Although it is an area where the interests of both project
sponsors and lenders converge to a large degree — a potential
win-win situation — commercial insurance is a discipline with its
own unique rules, which are not always clearly understood by the
main parties involved in project negotiations.
Basic
jargon
In most project finance transactions the main credit agreement
will include detailed insurance provisions. In some cases there
will be a separate insurance agreement governing the insurance
requirements and the parties' interests. Although the specific
scope of insurance coverage and amounts will differ in the case of
individual projects, it is safe to say that in virtually all cases,
these provisions will...