What construction all risks insurance protects

A construction project is a lengthy process in which contractors, suppliers, equipment and people work at the same time, and the value of the project grows with each stage. Construction and erection all risks insurance (CAR/EAR) protects against property losses from the destruction of or damage to the structure being built, the equipment being installed and the materials on site, and also covers the liability of the parties to the construction to third parties.

The policy is needed by clients and developers, general contractors and subcontractors, companies that install process equipment, and the banks and investors financing the project. Having such a contract is often directly required by the terms of the contract, tender documentation or the loan agreement.

Main risks and coverage options

As a rule, programs are built on an "all risks" basis: any sudden and unforeseen damage is covered, except what is expressly excluded. Several sections can be combined within one contract:

  • material damage to the construction and erection works: fire, explosion, natural disasters, flooding, collapse, errors in carrying out the works, unlawful acts of third parties;
  • construction plant and machinery, temporary buildings and structures on site;
  • debris removal costs after an insured event;
  • civil liability to third parties for harm to their life, health and property caused during the works;
  • the maintenance period after handover of the project — extended or limited cover;
  • commissioning works and comprehensive testing of equipment;
  • the client's losses from delay in putting the project into operation — by separate agreement.

What is usually not covered

Exclusions differ between programs, but a typical list includes:

  • rectification of design, material and workmanship defects (the errors themselves, without the resulting damage to other parts of the project);
  • wear, corrosion and gradual deterioration of properties;
  • fines, penalties and losses from downtime, unless separately included;
  • full or partial stoppage of works by decision of the policyholder;
  • damage caused by intent of the policyholder, as well as a number of political and nuclear risks;
  • shortages found during stocktaking.

What determines the price

The cost of insurance is calculated individually. It is affected by the type of project and construction technology, the total contract value, the duration of the works and of the maintenance period, the seismicity and hydrogeology of the site, the proximity of water bodies and neighbouring buildings, the contractor's experience, security and fire safety measures, the size of the deductible and the additional sections chosen. An approximate calculation can be made in the construction insurance calculator.

How to choose a program and what to look for in the contract

  • Sum insured — usually equal to the full value of the works under the contract, including materials and equipment; if understated, the payment may be reduced proportionally.
  • Limits — separate limits for natural disasters, debris removal, and liability per claim and in total under the contract.
  • Deductible — may differ for different risks; for natural disasters and testing it is often higher.
  • Territory — the exact address of the site, as well as the places where materials are stored and temporarily warehoused.
  • Period — from the start of works or from the unloading of materials until acceptance of the project, plus the maintenance period; the terms of extension if the schedule slips.
  • Payment procedure — who the beneficiary is (client, contractor, bank), which documents are needed and how the loss is calculated.

What to do if an insured event occurs

  1. Take steps to reduce the damage and ensure safety on the site.
  2. Notify the insurer within the period stated in the contract and, if necessary, the competent authorities.
  3. Preserve the damaged structures until the inspection, or record them with photos and video if the works cannot be stopped.
  4. Prepare the reports, as-built documentation, work logs and restoration estimates.

How Polis Re helps

We analyse the contract and the client's or bank's insurance requirements, compile a single data package on the project and request offers from several insurers. We compare the scope of cover, exclusions and deductibles, help agree the wording and support the settlement of losses. For large projects we arrange, where necessary, the placement of part of the risk in reinsurance. The list of partners is in the insurance companies section. To get started, leave a request to the broker.