Contractors’ all-risk insurance – often called CAR insurance – is a policy that protects a wide range of construction elements, from materials on the site, tools and equipment, to accidental loss or damage.
It’s a vital part of any construction project as it provides a financial fallback should anything unforeseen occur.
At Rigby Financial, we’ve worked with a wide variety of construction firms that have seen the benefit of contractors’ all-risk insurance first-hand, so let’s look into the reasons why you should obtain it, too.
What does contractors’ all-risk insurance cover?
Contractors’ all-risk insurance typically covers the construction works themselves, plus materials, tools, equipment (sometimes referred to as contracts works cover) and often third-party injury or property damage during the project.
Contract works cover
Contract works cover can protect the structure during construction, the materials on site, and any temporary works ongoing. It can also provide financial protection against any damage from fire, flood, storm, theft, or accidental damage.
Third-party liability cover
Third-party liability cover in a contractor’s all-risk insurance policy protects you if your work accidentally injures somebody or damages their property. Essentially, it can help to pay legal fees, compensation, and related claims arising from a third party’s loss.
Who needs contractors’ all-risk insurance?
Contractors’ all-risk insurance is typically needed by:
- The main contractors on a construction project
- Civil engineering contractors
- Developers and project owners
- Subcontractors (sometimes required by the main contractor)
Contractors’ all-risk insurance is usually required when any party has a contractual obligation to insure the works. It’s also needed for projects involving significant physical work, such as new builds, extensions, refurbishments, and improved infrastructure.
Contractors’ all-risk insurance and JCT contracts
If your construction project is subject to a Joint Contracts Tribunal (JCT) contract, it can be complex to figure out who is responsible for arranging CAR insurance. Plus, getting it wrong can leave either party exposed.
JCT contracts are the most widely used standard form construction contracts in the UK. They include specific clauses that set out insurance obligations for the contractor and the employers. Which option applies depends on the type of project.
JCT Insurance Option A
For new-build properties where there is no existing structure, the contractor insures the project for the full reinstatement value. This particular policy must cover the contractor, the employer, and any subcontractors.
JCT Insurance Option B
Under Option B, the employer takes out the joint names policy instead. This is much less common, but is occasionally used where the employer has an existing relationship with an insurer or where the contract value makes it more practical to arrange cover directly.
JCT Insurance Option C
For existing structures, Option C is the most likely choice. The employer insures the existing structure under a joint names policy, while the contractor obtains a separate cover for the contract works. This split arrangement reflects the fact that the employer already has an insurance interest in the existing building.
What is the maintenance period – and why does it matter?
The maintenance period is known as the time immediately after a construction project reaches its practical completion. This period is just as important as during the construction, and contractors’ all-risk insurance has a specific provision to cover it.
The maintenance period begins once the contractor hands over the completed works to the employer. Under most JCT contracts, this period can typically run for six to 12 months. During this time, the contractor remains responsible for rectifying any defects that come to light since the work was finished.
Some construction defects can only come to light once the building is in regular use. Whether it’s cracked render, a leaking roof, or a flooring issue, the maintenance period exists to give the employer a formal opportunity to bring the contractor back to fix issues. This also comes at the contractor’s expense.
What to check on your policy
Not all contractors’ all-risk insurance policies automatically include maintenance period cover, and those that do can vary in their terms. Here are the key things to confirm with your broker:
- Whether the extension is included as standard or needs to be added
- The duration of the maintenance period covered (it should match your contract)
- Whether the cover applies to the full contract works or only the area being worked on
- Any requirements to notify the insurer when the maintenance period begins
How much does contractors’ all-risk insurance cost?
There is no single one-price-fits-all contractors’ all-risk insurance policy. Premiums vary depending on each project, based on the specific risks involved.
However, understanding the main factors that influence cost will give you a realistic sense of what to expect when you request a quote.
The main factors that affect your CAR premium include:
- Contract value and scope – This is the single biggest factor when it comes to pricing a CAR policy. The higher the rebuild or reinstatement value, the higher the premium. A small house extension and a multi-storey commercial development will produce completely different premium quotes.
- Type of work – The exact type of project also matters in terms of policy cost. Demolition, groundworks, and projects involving existing occupied structures carry a higher risk than straightforward new builds. Also, work in proximity to utilities, underground services, or listed buildings will require additional scrutiny from underwriters.
- Project location – Location can also have an effect on your insurance premium. Projects in major city centres typically cost more to insure, because of their higher reinstatement costs and the complexity of working in densely built environments. Flood and subsidence risk, and local crime rates, can also influence pricing in certain areas.
- Project duration – CAR policies are written for a fixed period: the duration of the contract works. Longer construction projects mean a longer exposure for the insurer, which impacts the premium. The policy period must reflect the expected timeline, including any extensions. A policy that expires before practical completion means everything is uninsured.
- Claims history – As with most commercial insurance, a history of previous claims – especially if they’re large or frequent – will impact the insurance policy you’re attempting to obtain. Contractors with a clean record will typically be able to secure more competitive premiums.
- Additional covers – A base CAR insurance policy can be extended to include a wide range of additions, such as hired-in plant, owned plant, temporary buildings, and a maintenance period extension. Each addition increases the scope of cover and will be reflected in the final quote.
What’s not covered by contractors’ all-risk insurance?
CAR insurance is broad, hence the name ‘all-risk’. It covers any cause of loss or damage unless specifically excluded, rather than listing only the events it will pay out for.
However, ‘all-risk’ doesn’t necessarily mean ‘all things’.
CAR insurance covers damage to the works, but it does not cover the cost of correcting defective workmanship, faulty materials, or errors in design. If the contractor lays the floor incorrectly – whether it’s a new-build, an extension, or a refurbishment – the cost to repair this falls to the contractor.
The CAR policy would only respond if the defective work caused damage to something else, like a poorly installed pipe that leaked and damaged a neighbouring section of finished work, for example.
CAR insurance policies also do not cover:
- Existing structures not forming part of the contract works
- Mechanical or electrical breakdown of the plant
- Wear and tear, and gradual deterioration
- Consequential loss
- Employer’s liability
- War, nuclear risk, and terrorism
Why use a broker for contractors’ all-risk insurance?
Contractors’ all-risk insurance is not a product you can easily buy off a shelf, compare on a price aggregator, or configure via an online form. It’s a specialist commercial policy that’s written specifically to cover your construction project. The quality of the cover you receive depends almost entirely on how well the policy has been specified in the first place.
That’s where an experienced broker makes a huge difference, like Rigby Financial.
We have a team of experienced insurance brokers who are on hand and ready to help you obtain financial protection for your construction project.
Don’t wait any longer. Get in touch with our team by calling 01744 886077.