Any construction project requires a lot of investments and time along with many other factors needing to fall into place. Regardless of whether you are an individual who is renovating or building a house, a contractor who is managing different projects, or even a developer of a property, getting the proper insurance can be very beneficial.
Construction insurance can sometimes be confusing. There are different types of cover, different requirements across Australia and policies that respond to different risks.
Being aware of which insurance may be required and what it may cover, as well as its limitations, may assist you in making better-informed choices prior to the construction commencing.
In this guide, we will explore the different forms of construction insurance available in Australia, who may require them, what may be covered, and what costs are associated.
Why Is Construction Insurance Important?
Construction work comes with a range of risks. There may be physical hazards on site, expensive equipment and materials, subcontractors, employees, neighbouring properties and contractual obligations to manage.
An accident, storm, fire, theft or third-party claim can result in significant costs for a construction business or project owner.
Construction insurance is designed to help manage some of these financial risks by providing cover for defined events, subject to the policy wording, conditions, exclusions and limits.
Some types of construction insurance may also be required by legislation, while others may be required under a building contract.
For this reason, it is worth reviewing your insurance requirements before work starts rather than waiting until a problem occurs.
Types of Construction Insurance in Australia
However, there is no such insurance that covers all possible construction risks. It will be necessary to choose one according to such factors as your role in the construction project, the type of the work you do and its worthiness.
Home Warranty Insurance
Home warranty insurance, which can also be referred to as residential building insurance, domestic building insurance or home indemnity insurance depending on the state or territory, is designed to protect homeowners in certain circumstances involving residential building work.
Depending on the applicable scheme, it may provide protection if a licensed builder:
● Dies, disappears or becomes insolvent before completing the work
● Fails to complete the work and cannot be compelled to do so
● Completes the work but significant defects remain and the builder cannot be compelled to rectify them
The requirements for home warranty insurance vary between Australian states and territories, including the types of projects covered and applicable thresholds.
If you are a homeowner planning a new build or renovation, make sure you understand the requirements that apply to your project and confirm that the relevant insurance documentation is in place.
Contract Works Insurance
Contract works insurance, sometimes referred to as construction all-risks or builders all-risk insurance, is designed to cover certain physical loss or damage to construction works while a project is underway.
Depending on the policy, it may cover:
● Damage to construction works caused by events such as storms, fire or accidental damage
● Materials and equipment stored on site
● Temporary structures such as scaffolding, site sheds and hoardings
● Existing structures being worked on, where specifically covered
● Removal of debris following a covered loss
However, contract works insurance does not automatically cover every problem that occurs during construction.
For example, defective workmanship, wear and tear and certain consequential losses may be excluded or require a specific extension of cover.
How Much Does Contract Works Insurance Cost?
The cost of contract works insurance can vary considerably depending on the project and its risk profile.
Factors that may influence the premium include:
● Contract value
● Type of construction
● Project location
● Construction methods
● Project duration
● Previous claims
● Overall risk profile
Rather than relying on a standard percentage or assuming that one project will cost the same to insure as another, it is important to have the project assessed based on its individual circumstances.
Public Liability Insurance
Public liability insurance plays a crucial role in terms of construction projects as construction operations may possibly harm third parties and cause damage to their property.
Depending on the policy, public liability insurance may respond to certain claims involving:
● Injury to members of the public
● Damage to neighbouring properties
● Damage to third-party property
● Legal costs associated with covered liability claims
Building contracts may also require builders to maintain a particular level of public liability insurance throughout the project.
It is important to understand that public liability insurance is not designed to cover every type of construction-related loss.
For example:
● Damage to the construction works may fall under contract works insurance
● Professional errors or omissions may require professional indemnity insurance
● Employee injuries are generally dealt with under workers compensation arrangements
The appropriate level of cover will depend on the business, project and contractual requirements.
Professional Indemnity Insurance
Professional indemnity insurance may be relevant to professionals who provide advice, design, consulting or other professional services as part of a construction project.
This can include:
● Architects
● Engineers
● Building designers
● Project managers
● Town planners
● Other construction consultants
Depending on the policy, professional indemnity insurance may respond to certain claims arising from professional errors, omissions or negligent advice, including associated legal costs.
If you are engaging professionals for your construction project, it can be useful to confirm that they maintain appropriate professional indemnity insurance and request evidence of their current cover.
Workers Compensation Insurance
Workers compensation insurance provides protection for employees who suffer a work-related injury or illness.
Workers compensation requirements are regulated at the state and territory level, so the specific obligations can vary depending on where your business operates.
Depending on the applicable scheme, workers compensation may provide benefits such as:
● Payments to workers who are unable to work
● Medical and rehabilitation expenses
● Benefits for certain permanent impairments
● Death benefits in applicable circumstances
If you are a homeowner engaging a builder, it can also be worthwhile confirming that the builder has appropriate workers compensation arrangements for their employees.
Owner Builder Insurance
Owner builders have different responsibilities from homeowners who engage a licensed builder.
An owner builder generally takes responsibility for arranging or managing construction work on their own property. Depending on the state or territory, the value of the project and the type of work involved, specific insurance requirements may apply.
Owner builders should also consider the insurance held by contractors they engage. Depending on the work, this may include:
● Contract works insurance
● Public liability insurance
● Workers compensation insurance where applicable
If you are purchasing a property that includes recent owner-built work, it is important to carry out appropriate checks on the insurance and warranty arrangements associated with that work.
Builders Warranty Insurance Beyond Statutory Requirements
Home warranty insurance is not the only type of protection that may be considered for construction projects.
Builders and developers may also consider additional warranty or latent defects insurance, depending on the project and its requirements.
Latent defects insurance is designed to address certain structural defects that become apparent after construction, subject to the terms and conditions of the policy.
This type of cover can be particularly relevant to larger residential developments and apartment projects where the long-term condition of the building is an important consideration for owners, purchasers and financiers.
The suitability of this type of insurance will depend on the individual project and the cover available.
What Factors Affect Construction Insurance Costs?
There is no single price for construction insurance in Australia. Premiums can vary significantly between projects and businesses.
Some of the factors that may influence the cost include:
● Type of construction
● Project or contract value
● Location
● Construction period
● Nature of the work
● Business turnover
● Claims history
● Experience of the builder or contractor
● Number of employees and subcontractors
● Plant and equipment used
● Policy limits and excesses
● Additional extensions of cover
A higher-risk project may attract a different premium from a straightforward residential construction project.
This is why it is important to provide accurate information when arranging insurance. Missing or incorrect information can create problems if a claim occurs.
How Can a Construction Insurance Broker Help?
Understanding construction insurance can be difficult, particularly when several parties and different types of insurance are involved.
A construction insurance broker can help you review your circumstances and understand which insurance options may be relevant.
A broker may assist with:
● Reviewing your current insurance
● Identifying potential areas of risk
● Understanding project-specific requirements
● Reviewing insurance requirements in construction contracts
● Comparing available insurance options
● Explaining policy limits, exclusions and excesses
● Arranging appropriate insurance
● Reviewing your cover when your business or projects change
The goal is not simply to find the cheapest premium. It is about understanding the risks involved and selecting insurance that is appropriate for your circumstances.
What Should You Check Before Construction Starts?
Before work begins, take the time to review the insurance arrangements for the project.
Consider asking:
● What insurance does the construction contract require?
● Who is responsible for arranging each policy?
● Is the contract works sum insured appropriate?
● Are the public liability limits suitable?
● Do subcontractors have appropriate insurance?
● Are existing structures covered where required?
● Are there any important exclusions or conditions?
● Are current certificates of currency available?
Sorting these details out early can help avoid confusion later if an incident occurs.
Conclusion
Construction insurance plays an important role in mitigating the risks involved in residential and commercial construction projects. A good insurance cover may assist in protecting businesses as well as construction project owners from some potential unexpected financial losses and complying with their contracts and legal requirements.
Nevertheless, there is no one-size-fits-all solution for construction insurance coverage. Depending on the nature of the project, activities, people and business risks, different cover types are required.
Auswide Insurance Brokers assist Australian construction companies, contractors, developers and property owners to better understand their insurance needs and consider appropriate cover options.
No matter whether you are about to begin your construction project, manage an ongoing development or reconsider your current coverages, having your insurance cover checked may allow you to start your project with more confidence.
Speak with Auswide Insurance Brokers today to discuss your construction insurance requirements.