12/06/2025

On 10 March 2025, the Infrastructure and Projects Authority (“IPA”) produced a Guidance Note on the Insurance Premium Risk Sharing mechanism in PFI Projects, with the aim of providing greater clarity for parties to PFI contracts as to the meaning and effect of ‘Insurance Premium Risk Sharing Schedules’ within Project Agreements.  The Guidance Note seeks to promote best practice between the contracting parties, and consequently to reduce the number of disputes that arise as to how ‘Exceptional Costs’ and ‘Exceptional Savings’ should be calculated and shared between the parties.

Background

Insurance Premium Risk Sharing Schedules typically require the project’s insurance broker to produce a Joint Insurance Cost Report (“JICR”) every two years, setting out the broker’s opinion as to whether there has been a contractually defined ‘Exceptional Cost’ or an ‘Exceptional Saving’ in that period, i.e. whether the cost of maintaining the relevant insurances in the period in question is so much greater or less than was anticipated at the Base Date that an element of the costs or savings should be shared between the parties.

In recent years there has been an increasing number of disputes between contracting Authorities and Project Companies over the content of JICRs, particularly in circumstances where insurance costs have decreased, yet brokers have concluded there is no Exceptional Saving to which the public sector party is entitled to share. 

The Guidance

The Guidance Note identifies common themes between the disputes that have arisen, most notably the assessment of the value of the ‘Project Insurance Change’ (“PIC”), being a project-specific element of the increase or decrease in insurance costs that is excluded from the sharing mechanism.  The Guidance Note identifies a number of principles that the IPA considers the parties (and brokers) should adhere to when considering what properly constitutes a PIC, and notes that each PIC should be quantifiable and supported by evidence.

The Guidance Note also discusses the meaning of the ‘Relevant Insurance Market’, and the role of the broker and the duty of care they owe to the public sector party when preparing JICRs, while noting that fully understanding the intricacies of Insurance Premium Risk Sharing Schedules requires both legal and insurance expertise.  

Concluding Thoughts

Given the prevalence of disputes between Authorities and Project Companies as to the share of the savings to which Authorities are entitled as the insurance market has softened in recent years, the Guidance Note represents a timely and helpful overview of the operation of Insurance Premium Risk Sharing Schedules in Project Agreements.  However, whether it results in a reduction in the number of disputes arising will depend on whether parties and brokers adopt the same interpretation of a complex and technical contractual process, especially while operating within challenging time constraints.  It should also be noted that the Guidance Note is based on the standard drafting in the ‘Standardisation of PFI Contracts version 4’ (“SoPC4”), and while it is not common for amendments to be made to the standard wording, the express wording of the individual Project Agreement should be checked.

Bevan Brittan has significant experience and expertise in acting for parties involved in disputes regarding the operation and interpretation of Insurance Premium Risk Sharing Schedules, and we have achieved numerous successful outcomes for clients through adjudication, mediation, and negotiation.   If you have any questions or require any advice on this topic we would be more than happy to help.

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