It’s called contractors’ all risk insurance, construction insurance, or CAR, and many tradespeople choose to take it out in addition to the insurance they’re legally obliged to have. Why? Well, this non-standard insurance policy has a lot of bells and whistles to protect you if there are damages or personal injury claims (and more) while a building is under construction.
So what is contractors’ all risk insurance, and should you add it to the commercial insurance your business already has? We’ll take a look in this short guide to construction insurance in the UK.
What is contractors’ all risk insurance?
Contractors’ all risk insurance protects contractors or tradespeople from accidents that happen while they’re building a property. It insures people (third parties and sometimes on-site employees, too), the tools and equipment you need to fulfil your contract, and the structure that you or the subcontractors you hire are working on.
These policies are usually taken out by the following tradespeople:
- Plumbing and heating engineers
Often, you’ll be able to choose between different kinds of construction insurance depending on your workload, schedule, or the size of your construction company.
Many contractors’ all risk policies are short contracts that expire once a particular project is completed, handed over, or sold. After this, the property owner becomes solely responsible for insuring the building. However, there are also annual CAR policies for tradespeople and construction businesses. These contracts insure all the jobs you work over a 12-month period.
If you have annual contract works insurance, it’s a good idea to check your policy or ask your insurer whether you’re still covered if you take on a new kind of job during your contract. For example, if you normally work on renovations or repairs but you’re contracted to work on a new build, you should double-check that your insurer will still honour your policy when you make the switch.
Depending on the size and duration of the project, you might also opt to take out a joint all risk policy with the person employing you as a sole trader or a construction firm. This is something to discuss while you’re giving a quote or drawing up contracts.
What does contractors’ all risk insurance cover?
So, what is the all risk insurance policy?
It’s all in the name with this one!
Contractors’ all risk insurance is a comprehensive insurance policy covering all loss or damage to people or equipment associated with a building project. Rather than having a list of what your new insurance policy covers, you might find that CAR policies are so exhaustive that it’s easier to compile a list of what’s not insured.
Most CAR policies are broken down into the following categories.
The building you’re working on
If an accident damages the structure of the building, CAR will pay the cost of the repairs. So if a window is broken, if a piece of heavy machinery gets damaged, or if a structural problem results from a mistake in the blueprints, you’re probably covered.
It’s still important to note that existing structures on the site are sometimes excluded from CAR policies, and if you’re doing a renovation or extension, the policy might only cover the part of the building that you’re contracted to work on. For example, if you’re working on a loft conversion and a fire starts in the kitchen, the policy might not cover the costs involved in putting the whole building right.
The people working on the building site
If a construction worker — whether an employee on your team or a subcontractor hired for a day — is injured on your building site, CAR should pay to cover the cost of their medical expenses and any compensation claims they make after the accident.
If work at the site causes injury to a third party (for example, if something drops from the scaffolding onto the pavement below), insurance will cover the legal fees and the cost of compensation. It also covers property damage claims resulting from work on your site. For example, it may protect cars parked along the edge of the building site that get damaged.
As long as you can prove that they were stored securely, contractors’ all risk insurance should cover your employees’ tools if they’re stolen or vandalised, as well as if they’re damaged in the course of their work.
Likewise, the materials you need to complete the project should also be covered if there’s an accident. This often includes cover for unpredictable events such as floods or earthquakes, although you should check your policy to find out exactly how it defines and insures an Act of God.
Plant and heavy equipment
If you hire heavy machinery to complete the project, it will also be covered under the terms of most CAR policies. Naturally, your own plant is protected through hired-in plant insurance.
What insurance do construction companies need?
Contractors and tradespeople need to have certain commercial insurance policies in place to protect their business if something goes wrong. Some are required by law, while others are strongly recommended as an additional, and sometimes vital, protection.
Employers’ liability insurance
Employers’ liability insurance fulfils a legal responsibility to your team (and often people working on your site temporarily). It protects you if one of the people working on your construction site is injured and you have legal liability.
Employers’ liability insurance doesn’t just apply to the building industry. It’s a legal requirement that all businesses that employ one or more people in the UK have coverage of at least £5 million.
Public liability insurance
Public liability insurance is there to protect you from legal costs and the cost of paying compensation if you’re sued by a customer or a member of the public. For example, hospitality businesses have public liability insurance in case someone slips on a spill in a restaurant.
Although public liability is not a legal requirement, it’s strongly recommended that tradespeople (along with other businesses like hairdressers, home services, events venues, leisure facilities, and retailers) have robust coverage in this area.
Professional indemnity insurance
Professional indemnity (PI) cover is there in case a client or customer claims that your work doesn’t fulfil the terms of your contract, or if the work turns out to be faulty.
Like public liability, PI isn’t compulsory. But since the health and safety stakes are quite high in the construction industry, and since snagging lists after building projects can be so long, it’s also strongly recommended that all relevant tradespeople have PI.
What’s the difference between public liability and contractors’ all risk insurance?
This explanation is also in the name.
While CAR covers you for a wide range of damages that could occur while you’re constructing a building, public liability insurance is especially for any claims brought against you by members of the public. Public liability insurance, in other words, doesn’t cover the building itself, or your tools or materials. You’ll need CAR insurance for that.
Do construction workers need CAR?
Contractors’ all risk is not considered an essential commercial insurance policy, but the larger, more complex, or more unique the construction project, the more sense it makes to have a CAR policy in place.
As a building project becomes more complex, the chance of a mistake increases. And the more non-standard a building is, the more expensive it can be to repair or replace something.
A standard-sized window for a conservatory extension, for example, can be bought quite cheaply and quickly from a building centre or construction market. But a custom-made pane of glass for an architectural feature can cost thousands and take months to re-order, delaying the end date of the project and incurring further costs.
You may also want to take out CAR insurance because your public liability and employers’ liability insurance don’t cover some of the common problems that arise on construction projects, such as vandalism, theft, fire, storm, or flood. They also won’t pay out if a component you need is damaged in transit.
It can also be worth investigating your all risk insurance options because many CAR policies include employers’ liability and public liability insurance, as well as the contract works insurance that covers the building, tools, plant, and materials. Although you would still need separate PI insurance, you might find that you’re able to combine quite a lot of your commercial insurance in one all risk policy.
However, it always depends on your preference, the size of the project, and the terms of your other insurance policies. When you’re drawing up a contract, it’s worth checking to see what your insurance will cover, and what the client’s insurance will cover, to decide whether you want the extra protection that CAR will give you. And, as with any liability insurance, you should also be able to choose what level of coverage you want to pay for.
In summary: Contractors’ all risk insurance
Insurance is essential for anyone working in a trade. The risks of an accident happening at work are much higher than in other professions, and the cost of a claim — or the delay in finishing a project — can cause financial strain that, if poorly managed, can sink a construction business.
Although contractors’ all risk insurance is not a legal requirement, many construction professionals see it as a vital safety net for their employees, tools and equipment, members of the public, and their livelihood. For peace of mind, it makes sense to explore your options for flexible all risk cover that suits the size and nature of your latest projects.