No matter how careful contractors are, accidents can happen and equipment and buildings may be damaged. If contractors are working on several construction sites at the same time, such risks increase.
That’s why getting a Contractor’s All Risk (CAR) Insurance policy to protect your company can be useful. But what is Contractor’s All Risk Insurance, and does your company need it?
Contractor’s All Risk Insurance Essentials
If you’re a contractor, you know that there are risks in the construction business. Ultimately, your job is to ensure that the work is finished, even if things go wrong.
Let’s say one of your workers accidentally breaks a pipe in a building. Your responsibility is to fix the issue as soon as possible and at no additional cost to the client. That’s why having Contractor’s All Risk Insurance can be valuable. This policy can protect contractors in case of property damages and offers coverage for third-party claims.
Contractor’s All Risk Insurance also covers your tools and equipment in case of damage. In the event of tool theft, the cost of new tools is covered, too, enabling you to finish the job on time.
Remember that this policy isn’t mandatory. You and your employees can manage without it, but it might lessen the stress from potential damages.
What Happens If You Don’t Have CAR Insurance?
As mentioned above, Contractors All Risk Insurance isn’t obligatory coverage for contractors. However, there are some benefits to having it, which you need to weigh against the premiums charged (which we’ll cover later).
Firstly, you might miss out on a job opportunity if the client requests such coverage. Secondly, in the event of tool or equipment damage, covering the cost of the repair is much easier with a CAR policy.
Finally, in case of theft within the construction premises, unless you have Contractor’s All Risk Insurance, you won’t be reimbursed for stolen items.
What Doesn’t Contractor’s All Risk Insurance Cover?
Generally speaking, this type of policy covers a number of potential scenarios to protect contractors. But some scenarios are excluded from the policy. For that reason, read everything carefully to determine whether this insurance is right for you.
For example, if you’re renovating a building and find out it has structural issues, your Contractor’s All Risk Insurance won’t cover the cost to fix these problems. This is because the structural issue existed before you started renovating the building. If your projects focus on renovation, therefore, a CAR policy won’t help in this situation.
Furthermore, the policy doesn’t cover financial losses resulting from delays. If you stop working on a project altogether, keep in mind that Contractor’s All Risk Insurance won’t provide any compensation.
Finally, if an employee is injured while working on a construction project, Contractor’s All Risk Insurance doesn’t provide cover. Instead, you should consider Contractor’s (Employer’s Liability) Insurance for such issues.
How Insurers Determine Your Contractor’s All Risk Insurance Premium
Insurers determine the cost (premium) of the Contractor’s All Risk Insurance. However, this will vary and depend on several factors:
The Size of the Project
The bigger the project, the higher the policy’s premium. Large construction projects typically carry more risk, so a larger premium is needed to cover the potentially catastrophic cost of some unpredictable situations.
Working at Height
If your employees work at great heights, they are more at risk of accidentally damaging the property. For this reason, projects at six meters or higher often require much higher Contractor’s All Risk Insurance premiums.
Location and Duration of the Project
For example, if the terrain on which you’re building is considered rough or unstable, there’s more risk of damages eg due to building collapse. Hence, the need for more comprehensive Contractor’s All Risk Insurance cover.
And if the project requires a longer time to complete, there’s also a greater chance of accidental property damage. In this case, the cost of Contractor’s All Risk Insurance is also greater.
Be Smart – Think Before You Buy
Although not a critical document for most construction companies, Contractor’s All Risk Insurance is beneficial and has many advantages. It gives you peace of mind and covers various potential risks. But it’s important to familiarise yourself with types of coverage this policy provides to know if it’s the right policy for you, or whether there are cheaper alternatives to managing these risks.
John is an actuary and owner and Director of HJC Actuarial, which he founded in 2003 and which has advised over 100 clients since it’s’ inception. He has worked in the insurance industry for 30 years, qualifying as an actuary in 1995 and becoming a Partner in a major global consulting firm in 2000. Since 2003 he has provided independent advice to his clients on optimal insurance program design, presentation of risks, and premium negotiation with insurers, insurer solvency assessments, policy wordings, insurer selection, and insurance broker selection.