Construction Insurance

A Guide to Construction Insurance in The UK.
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Introduction to Construction Insurance

Homebuilders, developers and other individuals regularly ask us about construction insurance. Unlike any other insurance policy, construction insurance is made up of several premiums that you combine, depending on your needs. To that end, many people are perplexed about which product they should buy.

They also wonder which provider to choose and how to get the best deal.

To that end, we have compiled an A-Z of all the relevant information and recommend you call us for further details or guidance.

The following topics are covered below…

What is construction insurance?

Constructing any building is usually an expensive endeavor. Along with that, there are the risks (like accidents or property damage) which may cause you to lose money each step of the way. 

Construction insurance, also called ‘builders’ risk insurance’ or ‘Course of Construction’, is the premium you pay to protect yourself against liabilities. The policy pays for repairs and damage resolution, so you profit from your project more than you lose. 

Home builders expect building contractors to carry this certification of insurance.

Why do you need construction insurance?

When constructing your building, you or your contractor are likely to experience one or more of the following: 

  • Property damage: Damage to your property or equipment (e.g., fallen trees, power outages, roof damage, or flooding from storms). 
  • Income loss: This could be due to various factors like theft, vandalism or heavy worker turnover.
  • Employee injuries: Workplace-related injuries, illness, or death. 
  • Liability claims: Injuries or property damage caused by your company to others outside your project or company. For example, a passerby is accidentally injured by work on your construction site.

Construction insurance shields you from the loss incurred by such events.

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Who needs construction insurance?

Aside from general home builders and developers, entities that most need this coverage could be:

  • General contractors: Those who manage the project development.
  • Heavy contractors: Workers who construct highways, streets, bridges, railroads, and so forth.
  • Specialised contractors: These include painters, plumbers, carpenters, glaziers, and electricians
  • Home improvement companies

Basic construction insurance policies

The law requires contractors or developers to buy one or more of the following premiums, depending on your needs.

General liability insurance

Also known as ‘business liability insurance’, general liability insurance protects you from some of the more common injury and/or damage claims. This can include non-employees and property damage either at the premises or offsite. The insurance policy can also cover medical expenses and legal costs.

General liability insurance focuses on people and property outside your organisation. Bear in mind that it doesn’t cover vehicle accidents, intentional harm, or punitive damages.  

Workers’ compensation (or workers comp)

This policy covers medical expenses and a percentage of lost wages for workers who are injured or fall ill on the job. Workers compensation also provides employee rehabilitation and death benefits. 

However, note that the premium does not cover intentional injuries, injuries outside the workplace (even when commuting to and from the workplace), or injuries due to intoxication or substance abuse. 

For more information about this cover, speak with an advisor.

Third-party liability insurance

Third-party insurance covers claims made by non-employees against you. For example, a member of the public could make a claim if a fallen brick damaged their car, or if a supplier trips over an unsecured cable on-site. 

The insurance can cover all legal costs, from lawyers and witness fees to settlements, depending on the policy terms.

Auto insurance

With this insurance, you provide employees who drive your company’s vehicles with up-to-date commercial auto insurance.

Optional construction insurance policies

Depending on your needs, you may want to add the following to your policy:

Umbrella liability coverage

Umbrella insurance is a type of liability policy that exceeds the cover given to you by your general liability insurance, and it should cover any extras, too. For example, you may wish to include accidental death coverage, which wouldn’t be available in a standard general liability policy. 

If you’re planning a particularly ambitious or potentially risky project, you may want to consider taking this out; it also tends to be great value for money, considering the amount of coverage you’ll receive. On the other hand, you’ll need several basic policies to qualify (usually the general liability, workers’ compensation and auto insurance). 

Bear in mind that umbrella liability insurance doesn’t include your own injuries, damage to your own property, or intentional or criminal acts.

Professional liability coverage

Professional liability coverage fills the gap in the general liabilities insurance that refuses to insure damage from faulty workmanship or negligence. 

This policy covers all related legal expenses, including damages and court and attorney fees. 

Contractors’ pollution coverage 

Divided into three tiers that range from high to low hazards (or sudden, accidental or gradual development), contractors pollution coverage (CPL) refers to harm from your environment. For example, an employee who becomes ill from bacterial matter or fungi on your construction site.

Few CPL policies include incidental harm caused by naturally occurring hazardous substances (NOHS) like asbestos, mercury, arsenic, radon, and pyrite.

Extra expense insurance

Extra expense insurance applies when you have to move your continuously operating business elsewhere while repairs are done on your site.

For example, a home improvement company works on a nursing home but storms interrupt the labour, or critical equipment is moved elsewhere while repairs on the site continue. This causes extra expense. 

Extra expense insurance pays for expenses above and beyond your normal building costs, incurred by extra money you have to spend on conditions caused by an adverse situation.

Business owners’ policy (BOP)

If you’re a small business making less than £4 million in sales with under 100 employees, the business owners policy, or BOP, may well be your best option.

BOP gives you the following:

  • General liability: It tends to cover up to £1 million of property damage or bodily harm caused by your company to others.
  • Medical payments: BOP covers employee illness, injuries and death on, or related to, your workplace.
  • Property damage: This relates to damage that occurs to your own workplace, infrastructure, or tools.
  • Business income: This covers unexpected business expenses, up to 12 months.
  • Equipment breakdown: BOP covers equipment malfunction, breakdown, and routine wear-and-tear.
  • Rental vehicle coverage: The policy covers damage to vehicles you rent.

Small business owners tend to love this policy for its broad coverage at a relatively low premium. On the other hand, the policy isn’t typically flexible, which may make it irrelevant to your construction project and goals.

Some insurers add extra policies. Make an enquiry to be referred to experts who can advise you.

Which risks do these different construction insurance policies cover?

Most of the policies we’ve previously mentioned typically cover the following…

  • Fire
  • Strong wind (coverage may be limited in coastal areas)
  • Explosion
  • Lightning
  • Hail and other damaging weather conditions
  • Theft
  • Vandalism and maliciousness
  • Property damage from aircraft or vehicles

Standard exclusions include:

  • Flood/ water damage
  • Earthquakes
  • Coastal winds
  • Weather damage to exposed property
  • Terrorism or war
  • Employee theft
  • Government interference
  • Mechanical breakdown

Note: Most insurance policies do not cover damage caused by negligence or by poorly executed building plans, faulty workmanship, faulty materials or routine wear-and-tear. 

Some policies also exclude soft costs, such as labour costs to redo the work. 

We can also refer you to independent advisors who cover the following:

  • Exclusions like floods, earthquakes and coastal winds.
  • Property in transit (to protect your property from loss while it’s transported from the construction site)
  • Property in storage
  • Scaffolding, barricades, or similar temporary structures
  • Debris removed from buildings after accidents like earthquakes or hail. This also covers demolition needed to repair damaged areas of the structure. 
  • Terrorism (this depends on which region you work in)
  • Property insurance (like your office space or tools)
  • Valuable papers like site plans or blueprints

If you’re wondering what policy you need in order to cover specific things, reach out to us at 0808 189 0463.  The advisors we work with will be happy to discuss these and other options with you.

How do you know which construction insurance to choose?

Consider the following questions… 

  • What’s your project? 
  • How many workers do you have? 
  • What are your anticipated risks? 
  • What do you want to protect yourself from? 
  • What’s the size of your company? 
  • Which type of work do you perform?

You can take these questions and apply them to the policies mentioned, but for the best advice tailored for your needs, make an enquiry. The experts we work with are more than happy to walk you through your options.

Construction insurance coverage: The process

The process is simple: You’ll pay for what you want covered, with the policy extending over a three-month, six-month, or 12-month interval during the course of your project. If the building is incomplete by the end of the term, most insurers allow a maximum one-time extension, and that for a limited sum.

Construction insurance: The costs

Your policy costs depends on factors that include your coverage type, project difficulty, number of workers, your location, type of work, and anticipated profit. Projects that involve raw land and ambitious schemes usually cost more.

On top of that, your level of coverage and your insurance provider also determine your deductibles. Expect to pay one to four percent of the construction cost. 

Make an enquiry for more information.

How can you get good rates and pricing?

You’re less risky to insurers when you do the following:

  • Employ licensed workers.
  • Combine policies: Most insurers provide discounts for multiple policies.
  • Implement risk management: Put policies in place to identify, then prevent, possible workplace problems. Keep your General liability premiums down by following the OSHA safety requirements. That may protect you from claims for property damage and bodily injuries. 
  • Save on Auto Insurance by hiring employees with excellent driving records.

The best way to get favourable rates on construction insurance is to apply though an independent insurance advisor, like the ones we work with. They can compare deals across the whole of the market for you and introduce you to the lender offering the best deals to customers with your needs and circumstances.

Owner Controlled Construction Insurance Program

Since most home builders tend to buy the Owner Controlled Construction Insurance Programme, it’s important that you know the advantages and disadvantages of this scheme.

A Controlled Construction Insurance Program (CIP) is where the owner (home builder, developer or lead contractor) buys insurance for their contractors and subcontractors under their name. 

The benefits include likely lower premium costs and coordinated handling of all claims and safety initiatives, along with coordinated medical schemes for employee and non-employee workplace-related injuries. It also simplifies the insurance procedure and reduces PR damage to your reputation, in the case of claims.

On the other hand, CIP has limits that include the fact that it places intense responsibility on owners, particularly those who handle large teams. Such arrangements also call for regular broker attention to contracts. Contractors and subcontractors cannot profit from insurance-related markups, and the owner may find it more difficult to manage their respective claims.

Where do we go from here?

Looking for specialist advice and access to the best construction insurance providers in the business? Make an enquiry here or simply call us at 0808 189 0463 and we’ll pass you on to one of the independent experts we work with.

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Call us on 0808 189 0463 or fill out our quick enquiry form to be matched with the perfect advisor for you.
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