Construction projects carry a number of financial risks and involve several contractors as well as many different types of risks. Whether it is from property damage or theft, or even public liability claims and delays in construction projects, any unforeseen event can cause severe ramifications for the builders or contractors, or the property developers.
Construction insurance in Australia can assist companies deal with such risks through appropriate insurance coverage which is suitable for the nature of the construction projects, contracts and work.
What Is Construction Insurance?
Construction insurance is a broad term used to describe insurance policies designed to protect businesses and projects involved in building and construction activities.
Depending on the circumstances, a construction insurance program may include cover for:
● Contract works and construction materials
● Public and products liability
● Plant and equipment
● Professional indemnity
● Management liability
● Workers compensation
● Commercial motor
● Personal accident and sickness
● Home Building Compensation (where applicable)
There is no single construction insurance policy that automatically covers every risk. Builders, contractors and developers should assess their activities and contractual requirements to determine what insurance arrangements are appropriate.
Construction Insurance for Builders
Risks may affect the builders during the entire construction process. This may include damage to materials through fire, storm, and even theft, and accidental occurrences at the work place that cause injuries or property damages.
Contract Works Insurance is an insurance coverage for actual physical loss or damage to the construction works, depending on the terms of the insurance contract, also the materials or other property related to the project.
Public liability insurance is also an important consideration for construction businesses. It may respond to certain claims for third-party injury or property damage arising from the insured business activities.
Builders should also review their insurance requirements when entering contracts. A principal, developer or government entity may require specific insurance limits or policy conditions before work can commence.
Insurance for Construction Contractors and Trades
The exposure of the contractors and subcontractors could vary based on the kind of construction work that is being done.
For instance, the electrical contractor would have varied exposure than the demolition contractor, civil contractor, or carpenter. There could be some contractors who do construction at heights, handle heavy machinery, or conduct operations in occupied premises making risk management more important.
It is therefore imperative for the contractor to ascertain that the insurance is suitable for the tasks being undertaken. The alteration in nature of the business, the provision of new services, increase in project size or working in new places could necessitate insurance review.
Construction Insurance for Property Developers
Developers may find themselves at risk from issues which go beyond their involvement in the actual building of the development. This includes the aspects of land acquisition, financing, consultant involvement, builders and subcontractors and various contract relationships.
In terms of specific risks, it might be necessary for developers to take into consideration various types of insurance, including insurance of the construction work, liability insurance, professional insurance and any other risks involved in the project.
If the development is large or complex, an insurance broker can assist in identifying any insurance gap between insurance cover that is held by the developer, builders and other consultants.
Home Building Compensation Insurance in Australia
Home Building Compensation (HBC) requirements are state and territory specific, so builders should check the rules applying to their project and location.
For example, in NSW, licensed builders and tradespeople generally need HBC cover for eligible residential building work valued at more than $20,000, including GST, unless an exemption applies. The cover must generally be obtained before work starts or money, including a deposit, is taken from the homeowner, owner-builder or developer.
In NSW, HBC cover provides a safety net for homeowners in certain circumstances where a builder or tradesperson cannot complete work or honour warranty obligations, including situations involving insolvency, death, disappearance or certain licence suspensions.
Builders operating in NSW should check the current Home Building Compensation requirements before commencing eligible residential work.
Why Construction Insurance Matters
Construction projects can involve substantial financial exposure. A single incident can result in repair costs, legal expenses, delays or claims from third parties.
Appropriate insurance can help a business manage certain insured losses and protect its financial position. However, insurance is only one part of effective risk management.
Construction businesses should also maintain appropriate contracts, site safety procedures, risk assessments, documentation and compliance processes.
Safe Work Australia’s construction guidance explains the work health and safety duties that apply to businesses involved in construction, although specific legal requirements vary between Australian jurisdictions
How Much Does Construction Insurance Cost?
There is no standard price for construction insurance in Australia. Premiums can vary depending on factors such as:
● Type of construction work
● Annual turnover
● Contract values
● Project size and duration
● Construction location
● Claims history
● Experience of the business
● Subcontractor arrangements
● Policy limits and excesses
● Construction methods and materials
● Previous insurance history
For this reason, comparing policies based only on premium may not provide a complete picture. The scope of cover, exclusions, limits, conditions and excesses should also be considered.
Choosing Construction Insurance for Your Business
Before arranging cover, builders, contractors and developers should consider the risks associated with their particular activities and projects.
A construction insurance review should consider:
1. Your business activities
Make sure the insurer understands the work your business actually performs.
2. Your contracts
Review insurance requirements and indemnity obligations contained in construction contracts.
3. Project values
Consider whether policy limits are appropriate for the size and value of the work being undertaken.
4. Subcontractors
Understand which parties are responsible for insurance and verify relevant certificates where appropriate.
5. Policy exclusions
Read the policy wording and understand significant exclusions, conditions and limitations.
6. Regulatory requirements
Check the requirements that apply in your state or territory. For example, NSW has specific requirements for HBC cover.
Get the Right Construction Insurance Advice
The insurance policy needs to match the business and its construction risks. The builder and contractor will need to check his insurance from time to time especially when he is doing bigger projects.
At Auswide Insurance, we can help construction businesses understand their insurance options and arrange cover based on their individual circumstances.
If you are a builder, contractor or developer and want to review your current insurance arrangements, speak with an insurance broker about the types of cover that may be appropriate for your business.