TL;DR
- Most SA contractors’ domestic insurance programmes do not extend to projects in other African countries without specific endorsement or separate placement.
- FIDIC and NEC contracts used on African projects impose insurance obligations that differ from JBCC-based SA assumptions.
- Local insurance requirements in Zambia, Mozambique, Kenya, and Tanzania often mandate that policies are placed with locally licensed insurers or reinsured through local markets.
- Political risk, currency inconvertibility, and construction mafia-equivalent extortion risks in certain African jurisdictions require separate cover.
- A broker with Lloyd’s market access can structure cross-border programmes that satisfy both lender requirements and local regulatory compliance.
Table of Contents
Why Your SA Construction Insurance Does Not Travel
South African contractors tend to assume that their existing insurance programme can be extended to cover a project in another African country. Sometimes it can, with endorsement. More often, it cannot or it can on paper but will not respond in practice when the loss occurs in a jurisdiction the insurer did not price for.
Three structural problems make domestic SA construction insurance unreliable for cross-border work:
1. Territorial limits. Most CAR, plant, and liability policies issued in South Africa specify territorial limits. These may say “Republic of South Africa” or “Southern African Development Community” or “Africa” the wording matters. A policy limited to RSA will not cover a loss in Lusaka, regardless of what the project manager assumes. Even “SADC” limits exclude Kenya, Tanzania, and other East African markets where SA contractors are increasingly active.
2. Regulatory compliance. Many African countries require that insurance for projects within their borders be placed with or through locally licensed insurers. Zambia’s Pensions and Insurance Authority, Mozambique’s ISSM, Kenya’s Insurance Regulatory Authority, and Tanzania’s TIRA all have requirements around local placement, local premium retention, or fronting arrangements. An SA-issued policy that ignores these requirements may be technically valid between the contractor and the SA insurer, but unenforceable under local law if a third-party claim is brought in a local court.
3. Currency and claims settlement. An SA policy denominated in Rand may not adequately cover replacement costs in a country where construction materials are priced in US Dollars. If plant is destroyed on a Zambian project and replacement parts must be imported from Europe in USD, a Rand-denominated policy may leave the contractor with a currency shortfall. Claims settlement processes designed for SA, local loss adjusters, SA-based arbitration, Rand payments, may not function efficiently when the loss occurs 3,000 kilometres from Johannesburg.
FIDIC and NEC Insurance Clauses on African Projects
South African contractors working domestically are familiar with JBCC insurance requirements. Projects in the rest of Africa overwhelmingly use FIDIC (Red Book, Yellow Book, or Silver Book) or NEC (Engineering and Construction Contract) forms. These contracts impose different insurance obligations, and the gaps between what a JBCC-trained contractor expects and what FIDIC requires can be significant.
FIDIC insurance obligations that catch SA contractors
FIDIC contracts typically require the contractor to arrange insurance for the works, plant, materials, and equipment against all risks of loss or damage from the commencement date to the defects notification date. The specific requirements are set out in the Particular Conditions and the Contract Data, but common obligations include:
1. Joint insured requirements. FIDIC often requires the employer, the contractor, and all subcontractors to be named as joint insured on the CAR policy. SA contractors sometimes place policies naming only themselves, leaving the employer exposed and creating a breach of contract that can trigger termination rights.
2. Professional indemnity for design elements. On Yellow Book (design-build) projects, the contractor carries design liability. FIDIC requires PI cover for this design element, separate from the CAR policy. SA contractors who do traditional build-only work domestically may not carry PI cover at all, and finding it for an African design-build project at short notice is difficult and expensive.
3. Extended maintenance period cover. FIDIC defects notification periods (typically 12 to 24 months after taking-over) require insurance to remain in force for the full period. SA contractors sometimes let CAR policies lapse at practical completion, not realising the FIDIC contract requires cover to continue.
4. Third-party liability minimums. FIDIC Particular Conditions on donor-funded African projects (World Bank, AfDB, or DFI-financed) often specify minimum third-party liability limits that exceed what SA contractors typically carry. Limits of USD 5 million to USD 20 million per occurrence are common on major infrastructure projects.
NEC insurance requirements
NEC contracts, increasingly used on SA government projects and some African infrastructure programmes, use Insurance Table clauses that specify risks to be insured. The NEC approach is more prescriptive than JBCC but less detailed than FIDIC. The critical issue for cross-border work is that NEC Insurance Table 1 (loss of or damage to the works, plant, and materials) must cover events occurring in the country where the works are located but not in South Africa.
Local Insurance Requirements by Country
Every African country has its own insurance regulatory framework. SA contractors cannot assume that a Lloyd’s or Johannesburg-placed policy will be accepted or enforceable everywhere. Here is what you need to know for the four markets where SA contractors are most active.
Zambia
Zambia’s Pensions and Insurance Authority (PIA) requires that insurance for risks situated in Zambia be placed with or through Zambian-licensed insurers. SA contractors can use a fronting arrangement where a Zambian insurer issues the local policy and reinsures the risk back to an international market, but the local policy must exist. The Zambian Kwacha (ZMW) has been volatile (a CAR policy denominated in ZMW may need USD or ZAR sub-limits for imported plant and materials to avoid currency erosion). Performance bonds for Zambian projects face similar structuring challenges, particularly on Copperbelt mining infrastructure where contract values are denominated in USD but local costs are in Kwacha.
Mozambique
Mozambique’s insurance market is regulated by the ISSM (Instituto de Supervisao de Seguros de Mocambique). Local placement or fronting is required for risks situated in Mozambique. The Maputo Corridor and northern Cabo Delgado gas projects are the two primary areas where SA contractors operate. Northern projects carry additional security risks related to the ongoing insurgency, which standard CAR policies may exclude under terrorism or political violence clauses. Marine transit of plant and materials to Mozambican sites, (particularly to ports like Pemba or Mocimboa da Praia) requires specialised marine insurance that accounts for war risk and port infrastructure limitations.
Kenya
Kenya’s Insurance Regulatory Authority (IRA) mandates local placement for all classes of insurance covering Kenyan risks. Kenya has a relatively mature insurance market with local capacity for construction risks, but SA contractors often find that Kenyan CAR wordings are narrower than what they are accustomed to from the SA or Lloyd’s market. The key issue is ensuring that the local Kenyan policy provides equivalent cover to what the FIDIC contract requires, rather than accepting whatever the local insurer’s standard wording offers. Political risk in Kenya relates primarily to election cycles, county-level governance disputes, and ethnic tensions that can disrupt projects in specific regions.
Tanzania
Tanzania’s Insurance Regulatory Authority (TIRA) requires local placement. Tanzania’s construction insurance market is smaller than Kenya’s, and local capacity for large-value CAR placements is limited. SA contractors on major Tanzanian projects (port infrastructure, mining, energy) typically need a fronting arrangement with a local insurer backed by international reinsurance. Tanzania’s regulatory environment has tightened around foreign contractor participation and local content requirements, which can affect insurance structuring, particularly around employer’s liability and workers’ compensation, which must comply with Tanzanian labour law.
Three Ways to Structure Cross-Border Construction Cover
SA contractors have three principal options for insuring African projects. Each has trade-offs in cost, compliance, and claims efficiency.
1. Extend the SA policy. The simplest approach, ask your SA insurer to endorse the existing CAR policy to include the specific African project. This works when the insurer has appetite for the country risk, the project value is within existing limits, and local regulatory requirements do not mandate local placement. The advantage is administrative simplicity. The risk is that the SA insurer may not have loss adjustment capability in the project country, claims settlement may be slow, and the policy may not satisfy local regulatory requirements or FIDIC joint insured obligations.
2. Local placement with international reinsurance (fronting). A locally licensed insurer in the project country issues the CAR policy, satisfying local regulatory requirements. The local insurer reinsures the majority of the risk back to an international market, typically Lloyd’s or a large international insurer. This approach satisfies regulators, provides a local claims contact, and gives the contractor access to international policy wordings and capacity. The cost is higher than a straight SA extension (local insurer margins, reinsurance costs, and fronting fees), but the compliance and claims benefits usually justify it on projects above R50 million.
3. Controlled master programme. For SA contractors with multiple concurrent African projects, a controlled master programme (CMP) provides a single international policy that sits above local policies in each country. The CMP ensures consistent coverage terms, fills gaps in local wordings (difference in conditions/difference in limits DIC/DIL), and provides a single point of claims coordination. This is the most sophisticated approach and is typically arranged through a broker with Lloyd’s market access and pan-African fronting network capability. Berkley Risk arranges construction and engineering insurance programmes of this nature through the Lloyd’s market for SA contractors operating across multiple African jurisdictions.
The Political Risk Layer Most Contractors Forget
Construction insurance covers physical loss and damage. It does not cover the political and sovereign risks that are often the biggest threat to project viability in African markets. SA contractors who insure the works but ignore the political environment are exposed to risks that no CAR policy was designed to handle.
Three political risk scenarios that have affected SA contractors in Africa in recent years:
1. Contract frustration by government action. A government entity awards a contract, the contractor mobilises, imports plant, hires local staff, and begins work. Six months in, a change of minister, a budget reallocation, or a political dispute causes the employer to suspend or cancel the contract. The contractor has R30 million in sunk costs. The CAR policy covers physical damage to the works not financial loss from contract cancellation. Political risk insurance can cover contract frustration, but it must be arranged before mobilisation, not after the political situation deteriorates.
2. Currency inconvertibility. The contractor completes milestone payments in local currency but cannot convert and repatriate profits to South Africa because the central bank has imposed capital controls or the local currency has become illiquid. This has happened in Zambia (ZMW volatility), Mozambique (MZN restrictions during the Cabo Delgado crisis), and multiple other African markets. Political risk insurance can cover currency inconvertibility and transfer restrictions, protecting the contractor’s ability to repatriate earnings.
3. Expropriation and creeping expropriation. Plant and equipment imported for a project may be seized, detained, or made subject to export restrictions. Local content regulations may force the contractor to transfer assets to a local entity at below-market value. These are expropriation risks that political risk insurance is specifically designed to cover.
The cost of political risk cover for African construction projects is typically 1–3% of the insured contract value, depending on country, duration, and insurer appetite. Compared to the cost of an uninsured contract cancellation or currency trap, it is a modest investment.
Getting Plant, Equipment, and Materials to Site
Before a single foundation is poured, the contractor must get plant, equipment, and materials from South Africa (or internationally) to the project site. This transit phase is where many cross-border insurance programmes have their first gap.
SA contractors typically insure plant under a plant all risks policy and materials under the CAR policy once they arrive on site. But the transit between Durban port and a project site in Lusaka, Dar es Salaam, or Mombasa involves road freight, border crossings, customs bonded warehouses, and potentially multiple modes of transport. Standard CAR transit clauses may not cover the full journey, particularly if the route includes countries not listed in the policy’s territorial scope.
A separate marine cargo or inland transit policy, structured to cover the specific route from origin to project site, fills this gap. For Mozambican projects, where port infrastructure in the north remains limited and road quality between Maputo and northern project sites is poor, the transit risk is material like theft, damage during road freight, and delays at border crossings all create exposures that need specific cover.
Contractors importing high-value plant (cranes, excavators, batch plants) should also consider whether the plant policy covers the equipment while in transit, while on site in a foreign country, and while being demobilised and returned to SA after project completion. Gaps between these three phases are common and often discovered only when a loss occurs.
Insurance Structuring Checklist for African Projects
Before mobilising to any African project, SA contractors should work through these items with their broker:
1. Confirm territorial limits. Does your existing CAR, plant, and liability cover extend to the project country? If not, what endorsement or separate placement is needed?
2. Check local placement requirements. Does the project country require insurance to be placed with or through a locally licensed insurer? If so, identify a local fronting partner with appropriate capacity.
3. Review the construction contract insurance clauses. What does the FIDIC or NEC contract specifically require in terms of cover types, limits, joint insured parties, and cover duration? Map these against your actual or proposed insurance programme and identify gaps.
4. Address currency denomination. Is your policy denominated in a currency that matches your actual exposure? If contract values are in USD and local costs in Kwacha or Shillings, your insurance should reflect that currency mix.
5. Arrange political risk cover. Assess contract frustration, currency inconvertibility, and expropriation risks for the specific country and project. Arrange cover before mobilisation, political risk insurance placed after a crisis has begun is either unavailable or prohibitively expensive.
6. Structure transit insurance. Map the physical route from SA (or international origin) to the project site. Ensure plant, materials, and equipment are covered for every leg of the journey, including border crossings and bonded storage.
7. Confirm workers’ compensation compliance. Verify that employer’s liability and workers’ compensation cover complies with the project country’s labour law. SA COIDA cover does not extend to employees working in foreign countries unless specifically endorsed.
8. Establish claims protocols. Identify loss adjusters with capability in the project country. Confirm the insurer’s claims notification requirements and ensure site-level staff understand the reporting chain.
Frequently Asked Questions
Can my SA contractors all risks policy cover a project in another African country?
It depends on the policy’s territorial limits and the insurer’s appetite. Some SA CAR policies can be endorsed to include specific African projects, but this requires insurer agreement, appropriate premium adjustment, and confirmation that the extended cover satisfies local regulatory requirements in the project country. Many African jurisdictions require local insurance placement, which means an SA-only policy may not be sufficient regardless of its territorial scope. Your broker should assess both the policy capability and the regulatory requirements before you rely on an SA extension.
What is a fronting arrangement for cross-border construction insurance?
A fronting arrangement involves a locally licensed insurer in the project country issuing the insurance policy to satisfy local regulatory requirements, then reinsuring most or all of the risk with an international insurer or through the Lloyd’s market. The local insurer acts as the “front” the policy is issued locally, premiums are paid locally, and local regulatory requirements are met. The actual risk is carried by the international reinsurer. This is the standard approach for large-value construction projects in countries where local insurance capacity is limited but local placement is mandatory.
Do I need separate political risk insurance for African construction projects?
In most cases, yes. CAR and engineering insurance covers physical loss and damage to the works. It does not cover financial losses from government action, contract frustration, currency inconvertibility, or expropriation, all of which are real risks on African construction projects. Political risk insurance is a separate placement that protects against these sovereign and political exposures. The cost is typically 1–3% of the insured value and should be arranged before mobilisation, not after the political environment deteriorates.
What construction contract forms are used on African projects and how do they affect insurance?
African infrastructure projects predominantly use FIDIC (Red Book for traditional, Yellow Book for design-build, Silver Book for turnkey) or NEC (Engineering and Construction Contract) forms. These contracts specify insurance requirements in the Particular Conditions or Insurance Table, including cover types, minimum limits, joint insured requirements, and cover duration. FIDIC requirements are often more demanding than what SA contractors carry under JBCC-based domestic programmes, particularly around joint insured obligations, design liability PI cover, and extended maintenance period insurance.
How should SA contractors handle currency risk in their African project insurance?
Currency denomination in insurance should match the contractor’s actual exposure. If contract values and imported materials are priced in USD but local labour and materials are in the project country’s currency, the insurance programme should reflect this split. A Rand-denominated CAR policy on a USD-denominated project creates a currency mismatch that will show up at claims stage. Discuss currency structuring with your broker during the placement process not after a loss when the exchange rate has moved against you.
Get Your African Project Insurance Programme Structured Before Mobilisation
If you are tendering for or mobilising to a construction project in Africa, your insurance programme needs to be structured for that specific country, contract form, and risk environment not copied from your SA domestic cover. Contact Berkley Risk or call 011-702-8250 to arrange a cross-border construction insurance review through our Lloyd’s market access and pan-African placement capability subject to underwriting and insurer appetite.
Berkley Risk (Pty) Ltd arranges/places/co-ordinates insurance with licensed insurers. This article is general information only and does not constitute legal, financial, or regulatory advice. All cover is subject to underwriting acceptance and final policy wording.
