As a general contractor, you’re responsible for a great deal when it comes to a construction project. From the people working on the site to the ultimate structural soundness of the building, there’s a lot of potential liability. For that reason, it’s important to have insurance coverage that matches those liabilities.
In some cases, that will mean having higher coverage than another business in the same earnings bracket. But you have access to insurance policy options designed specifically for contractors in the form of all risk insurance. In this article, we’ll explore those options.
What Insurance Do Contractors Need?
General contractors are like many other businesses: they must have Employers’ Liability (EL) insurance coverage, if they have employees (with the normal statutory exemptions). The nature of the work places employees at a relatively high risk of injury and therefore opens you up, as their employer, to numerous potential claims.
Additionally, most contractors will benefit from Public Liability (PL) insurance for the same reason. Construction work has the potential to cause major injuries to members of the public (or damage to third party property) that comes into contact with your business. Between £1 million and £5 million of PL insurance is not uncommon, though £100m or more can be required for the largest construction projects.
Lastly, in terms of insurance typically needed for contractors, Professional Indemnity (PI) rates highly on the list. Poor advice about a construction project can result in huge financial losses for your clients eg miscalculating maximum safe loading limits can cause buildings (and nearby roads, drains etc) to collapse. Your clients rely on your experience and knowledge, so they often insist on PI insurance to ensure that any potential such liabilities can be met.
What Is an All Risk Insurance Policy?
In the previous section, we covered some general insurance policies you need as a general contractor. However, every project you undertake will have different and specific challenges. It makes sense, therefore, to also consider insurance that responds to the needs of those projects.
That’s where “All Risk” insurance comes in; also called Contractors All-Risk (CAR) or “open perils” insurance, All Risk insurance covers any risk that is explicitly omitted in any general EL, PL or PI insurance policies
In contrast to a typical insurance policy, an all risk policy has wording to exclude certain risks (already covered by other policies) rather than outline what is covered. Anything not excluded in the policy is covered, and such exclusions will be tailored for specific industries.
What Does Contractors’ All Risk Insurance (CAR) Cover?
As a part of the broad umbrella of all risk insurance, Contractors’ All Risk insurance provides coverage for property damage and third-party injury claims stemming from a construction project. More specifically, the two parts of a CAR policy break down as follows:
- Material losses from a construction project. This includes damage to raw material and equipment at a construction site that’s part of the project itself, but not damage to material assets of third parties.
- Third-party liability claims. This encompasses bodily injury to any third-party as a result of construction activity on the project.
In addition to these two basic protections in a CAR policy, you may choose to include options such as freight insurance and debris removal insurance, for additional premium.
What Is the Difference Between Contractors’ All-Risks and Contractors’ PL Insurance?
Although it may seem like Contractors’ All-Risks insurance and contractors’ PL insurance overlap, there is an important distinction. PL insurance is a policy for your business as a general contractor. As such, the onus is on your business to cover the premium.
A CAR policy, on the other hand, is a policy taken out for a specific construction project. It typically begins and ends with the project. Since construction projects can be inordinately costly and may have numerous investors, the cost of premiums may be distributed among all parties.
The premium for CAR policies is usually tied to the full cost of the project, including the cost of materials, and is typically up to 5% of the project cost, according to the size, complexity and riskiness of the project.
Cover All Your Risks
You can find out much more information on our website here about contractors’ all risk insurance and why it’s important for your business. As a contractor, your business is placed at risk of catastrophic claims so it’s important to understand how each project differs and the level of insurance required to protect yourself.
At InsuranceInspect Services, we’ll work with you to help you understand every aspect of your insurance and make sure you get the coverage you need, not the coverage insurers want to sell you. We leverage decades of actuarial experience to reduce your insurance premiums Substantially, Safely, and Strategically.
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.