Contract works insurance, also known as Contractors’ All Risks Insurance, is a type of insurance policy that provides coverage for construction projects or contract works to protect against loss or damage to the materials, plants and equipment used in a construction project.
The insurance covers works under construction including temporary structures for things like fire, theft, vandalism and natural disasters.
Principal contractors working on projects are usually responsible for taking out and managing the insurance. If something happens to the construction works before completion, the costs of repairs or rebuilding can be claimed and therefore mitigates financial risks for construction projects.
Read on for further insight into contract works insurance, its importance and how to choose the most suitable one for your business. We also discuss if a contract works insurance is for every company and the other insurance your business might need.
What Is Contract Works Insurance?
Contract works insurance is a protection for construction companies against damages or losses from an unexpected accident or adverse weather. An unforeseen situation can significantly stop ongoing work and affect existing orders or projects with a strict deadline.
Jobs on a fixed budget also get affected and you might have to start over. Potential losses in the absence of an insurance policy are usually felt by all parties – the customer, contractor or subcontractor.
That explains the significance of having contract works insurance in your company. Accidents do not always occur in the work environment but can be costly when they do. A good insurance plan covers the cost of repairs, replacing materials and other attributed expenses to the accident or event. You might also be eligible to claim cover for monetary value because of delays to ongoing projects.
Who Needs Contract Works Insurance?
Contract works insurance is necessary for every construction company regardless of whether they are into building or property renovation. Companies that perform installation and maintenance of building equipment should also be insured. Getting insurance is particularly important if you manage large contracts above £500,000.
Common examples of businesses that require contract works insurance are:
- A construction company that builds properties: a construction company in charge of completing a new office block will need insurance against bad weather or accidents on site. We recommend contracts work insurance to cover the repair costs or delay t ongoing projects when an accident occurs.
- A window installation company: getting a contract works insurance can save you the cost of repairs or replacement of broken windows during installation.
- A company that install solar panels: you need insurance as a solar panel installation company to cover for damages or repairs to purchased equipment or materials during a project.
- A scaffolding company: a collapsed scaffold can cause damages or injuries on a construction site. Having a good insurance policy helps to pay for losses incurred.
The above examples are only selected instances of the benefits of insuring your company. Insurance is non-negotiable if your company manages construction projects on an industrial scale.
Why Is Contract Works Insurance Important?
There are certain benefits of having contract works insurance
- Protection of your business from financial losses: unexpected delays caused by bad weather, accidents or faulty equipment on the construction site can cause financial losses. However, having some insurance protects against these losses, especially during an ongoing project.
- Acts as cover for legal expenses: a contract works insurance plan acts as a shield when an accident or dangerous incident occurs on the construction site. You need insurance to protect against affected parties that take the business to court. The insurance would pay for the associated legal expenses.
- Protect the business reputation: a dispute with unsatisfied or aggrieved customers can affect the public image of your company. Some contract works insurance policies work to portray the company as a professional and reliable organisation in such instances.
- Compliance with the law: there are certain business requirements for companies working on contracts above £500,000 to have a solid insurance plan. Failing to get insured might be considered non-compliance in such circumstances.
- Quick recovery from losses: getting back to full operating capacity might take some time after an accident except you have an insurance company to take full responsibility for the losses.
What Does It Cover?
A detailed contract works insurance policy covers the following expenses when the unexpected occurs:
- The cost of repairs or replacement materials: the insurance covers the overall costs of fixing or replacing damaged materials that can delay projects on-site.
- The cost of hiring temporary workers: a contract works insurance can also cover the costs of temporarily hiring workers to complete an urgent project if an accident happens.
- Loss of earnings over delayed projects: your insurance company can pay for the estimated monetary value lost because of delay or hold on an ongoing construction project.
- The cost of legal expenses: having a contract works insurance company also settles the cost of legal fees if the business gets dragged to court over a work incident or accident.
What Doesn’t It Cover?
While contract work insurance covers a wide range of costs, there are a few instances where the affected company must bear the costs. These include:
- Faulty workmanship: a contract works insurance policy does not pay for completed projects that were rejected because of poor quality.
- Cancellation of a project: your insurance company reserves the right to not pay for lost earnings on a cancelled project.
- Employee theft: a contract works insurance is not obligated to replace materials or equipment that got stolen by your employees.
- Terrorism: the agreement terms in a contract works insurance does not cover damages or losses caused by terrorism.
Understand that different insurance companies might have varying policies on the type of damages or losses they protect against. It is essential to research the agreement terms of the insurance policy.
How to Choose a Contract Works Insurance Policy?
The process of choosing a contract works insurance policy starts with considering its terms and conditions. You need to know what type of damages and losses the insuring company takes as their responsibility. A proper understanding of the agreement terms gives assurance of how much protection your business enjoys.
The second step is evaluating the cost of the insurance policy. Your budget is a determining factor of the insurance type you eventually choose. However, do not opt for a policy only because it is the cheapest. There are other factors to consider like whether your preferred insurance has a standalone or combined policy.
A standalone policy focuses on only the contract works insurance terms and conditions. It is different from the combined policy that offers the same protection as a standalone but with additional insurance such as employer’s liability, public liability, and commercial premises.
Lastly, you should ask about the excess on the policy. This refers to the amount you are required to pay if you need to make a claim. It is essential because it contributes to the total insurance cost and determines the level of protection the insuring company provides.
An Example of Contract Works Insurance
Let’s use examples to illustrate how a contract works and insurance can protect your business. Imagine a construction company as described below:
- The construction company commences a project to build a new office block on a contract worth £500,000.
- The manager reaches out to an insurance company and sets up a contract for work insurance.
- During the on-site construction, a fire outbreak occurs and damages the uncompleted office block. The owner of the project gets angry and sues the construction company for negligence and damages to property.
- The insurance company steps in and pays for the cost of the repairs. The contract works insurance policy also covers the overall legal expenses of the lawsuit.
That’s how the contract works insurance protects businesses. Without a proper insurance policy, the construction company would have incurred massive debts from the unexpected repair costs and legal proceedings. However, that does not happen because the insurance company claims responsibility for the costs from the agreed insurance policy.
Other Types of Insurance Your Construction Company May Need
The contract works insurance is not the only insurance type you require as a construction company. We have other policies to consider like:
Employer’s Liability Insurance
Employer’s Liability insurance is a legal requirement for companies with employees. This type of insurance covers the costs of injury or illness that occurs to any employee while performing their duties. For example, an employee falls and gets injured during construction work. The employer’s liability insurance covers the medical treatment costs.
Public Liability Insurance
Public liability insurance is another legal requirement for companies that have physical interactions with customers. It covers the cost of any injury or bodily harm to a customer on the company premises. An example is a situation where a visiting client falls and gets injured. The public liability insurance policy of that company pays for the medical treatment costs. This insurance type is vital for any company that has walk-in customers.
Commercial Premises Insurance
Commercial premises insurance is for businesses that have physical premises. The insurance company provides financial protection against any damage or theft that might occur. For example, a fire outbreak inside the office block that damages the building and properties. A commercial premises policy covers the cost of repairs and replacement of every damaged item.
Fleet Insurance
Fleet insurance is a policy that offers financial protection for repair or replacement costs of damaged vehicles. It is a common insurance type in the construction industry since most businesses use multiple vehicles both on and off project sites.
For example, one of the vans of a company could get involved in a road accident. The fleet insurance policy then covers the cost of repairs or replacement for the van. There are many advantages of insuring your construction fleets over individual insurance of company vehicles. It is cheaper to include a fleet under one policy than separate insurance policies.
Trade Credit Insurance
Trade credit insurance is a policy that protects businesses from incurring losses from unpaid debts. There are many possible reasons for such a situation. For example, a company supplies goods to a customer or another business that goes bankrupt and cannot repay. Having a trade credit insurance policy covers such losses and minimises the possibility of running into debts over business agreements.
Why Comprehensive Insurance is So Important
The best way to run a business is to stay prepared for every possible scenario. No business manager wants to run into debts or deal with damages from an accident. However, these scenarios sometimes happen unexpectedly and only a good insurance policy can minimise the impact. Choosing the right insurance is essential for every business that aims for continued growth.
Consider starting with a contract works insurance but also check out other packages available to construction companies. We suggest speaking to an insurance broker about the best insurance policies that suit your business structure. A broker has experience to advise on the different insurance types and how to get the most competitive deals.
Other Tips for Getting the Best Deals on Insurance
Getting the best insurance deals is about how much research you are willing to do. We have different insurance companies with varying prices and policies. Besides, some of the insurance providers regularly update their policies. Intentionality is the only effective strategy to compare the available insurance policy alternatives.
A company searching for the best price terms should consider a combined insurance policy. This refers to opting for a plan that includes a combination of other insurance types. For example, a combined policy that contains public liability and employer’s liability policies. Combined insurance deals are usually cheaper than separate policies.
Finally, ensure you keep to payment deadlines to renew insurance policies. Missing out on assigned payment schedules can trigger increments in premium insurance costs. We also have rare cases where the insurance company cancels your policy, especially if they send payment reminders.
Final Thoughts
Having a contract works insurance is crucial for every business in the construction industry. Otherwise, you risk running into losses for every accident or fire outbreak on the construction site. Unexpected situations could also be damage to vehicles or injury to employees or customers.
Ensure you cross-check the paperwork before entering an agreement with an insurance company. Confirm they offer sufficient protection over your property, equipment and premises. Do not also hesitate to contact an insurance broker if confused about the best policies for your business.
