Building in Finland: Insurances and risk management

Foreign contractors undertaking large-scale construction or industrial installation projects in Finland – whether under turnkey contracts or as specialised subcontractors – face a range of risks that must be proactively managed. These risks are not only technical and operational in nature, but also legal and contractual.

Contractors typically assume significant responsibilities in EPC or installation projects, and many bring their own machinery, tools, and workforce to the site. The risks they face can be grouped into several broad categories:

Construction and operational risks (e.g. damage to works, delays, defects)

Liability risks (e.g. personal injury, property damage to third parties)

Logistics and equipment risks (e.g. damage in transit, customs issues)

Employer obligations (e.g. occupational safety, social security)

Compliance risks (e.g. incorrect tax or social security handling)

There is no single right way to handle these risks. Some of them may be small enough that they do not need to be handled at all. For example, certain contractual liabilities may effectively be limited to amounts that can be funded from the contractor’s normal business budget if necessary.

But there will be many risks that do need attention, and it is a good idea to identify and address these as early as possible in any project. Adequate risk management will usually entail a mix of elements.

First of all, certain risks may be contracted out to other project participants, in particular to subcontractors and suppliers. Of course, it is not enough to enter into a contract in which a supplier accepts wide liability for damages, defects, or delays. It is also necessary to ensure that the supplier is able to carry the risk if damages materialise. If the supplier themself is not strong enough to carry the risk, they should be required to procure adequate insurances. However, it may be more cost efficient not to move the risk to the supplier at all and procure insurance yourself.

Taking out sufficient insurances is at the core of project risk management. No single insurance should be viewed in isolation, but insurances taken out by a contractor should form a coherent set that covers the actual project risks and does not leave gaps. Underinsurance of risks should be avoided, as this will usually lead to reductions in cover in case that damage occurs, even if the damage remains within the defined limits of insurance cover.

Certain insurances are mandated by law, including most notably accident insurances and pension insurances for employees active in the project (whether local or posted). We will cover these further below.

Insurances are also commonly mandated in Finnish contracting practice. Ultimately, adequate cover is of course in the contractor’s own interest regardless of the contract. The following types of insurance are typically considered:

CAR/EAR insurance (Construction/Erection All Risks): Typically taken out by the project owner or main contractor, but foreign subcontractors should ensure that they are named as insured parties. Alternatively, they may be required to provide their own CAR/EAR insurance if working independently or on isolated site areas.

DSU insurance (Delay of Startup): Usually an extension to CAR/EAR insurances, DSU covers a loss of revenue suffered by the project owner in case of delays caused by insured events. Where the main contractor is required by contract to take our CAR/EAR insurance, such requirement may include DSU cover for the benefit of the project owner. It should be noted that DSU insurance does not typically cover the contractor’s risk of having to pay liquidated damages for delay.

General liability insurance: Contractors must carry their own third-party liability insurance, covering both personal injury and property damage. This must also be valid in Finland and align with local standards.

Professional indemnity insurance (PI): Where design or engineering services are involved, PI insurance may be required.

Equipment and Tools Insurance: Machinery and tools brought into Finland are not usually covered under site CAR/EAR policies. Separate coverage (either through transport insurance or a standalone policy valid in Finland) is often necessary.

Finally, and above all, diligent project management is the cornerstone of all risk management. In some cases, such as for compliance risks, it is the only way to manage risks adequately. But also where risks are contracted out or insured, it is usually necessary to manage observations, communications, and claims towards contract partners and insurers in a stringent way in order to avoid loss of claims or cover. Diligent management includes involvement of local legal and insurance experts early during contract negotiations.