Construction insurance is one of the most complex areas of commercial insurance. The detailed wording of policies can sometimes leave the business owner exposed to risk when it had been assumed the policy would provide sufficient coverage in any eventuality. Here are four things that everyone in the construction industry – from owners of large enterprises right down to sole traders and owner/builders – needs to know about construction insurance:

The two basic types of construction insurance policies
There are two different types of construction insurance policies – a single project policy that provides insurance for a one-off project, and an annual policy that provides insurance for the various works that are happening over a 12-month policy period.

Of the two types, the annualised insurance policy is the more complex. In simple terms, the options are:

  • what’s called a “run-off” policy, or a “projects/contracts commencing” policy, which provides insurance coverage for all projects that meet the characteristics specified in the schedule and have commenced during the 12-month policy period, with coverage continuing right up until whenever the construction and its defects liability period is complete;
  • what’s called a “turnover” policy, or sometimes a “transfer” or “cut-off” policy, which provides insurance coverage for all projects being worked on, or planned to be worked on, during the 12-month policy period – with any projects completed within the 12-month policy period covered for a set period of time after construction project completion – however there are numerous provisos to do with completion dates and defect liability periods which are best explained in-person by an experienced construction insurance broker.

Changing from one kind of construction insurance policy to another

“Whenever I’m asked to review a client’s construction insurance positioning, the first thing I need to investigate is the existing or expiring policy,” said Jim Morgan, of Morgan Insurance Group, specialist construction insurance brokers.

“For example, sometimes there appears to be an advantage for the business in changing from one type of construction insurance policy to another but attempting a straightforward switch could expose the business to a claim that is not indemnified under the new policy,” Jim said. “This is where the business owner can really benefit from a trusted relationship with an expert advisor, to help make prudent decisions for the business in a financial sense, balanced with the need to minimise risk to the business at the same time.”

Enhancing the existing type of cover with expertly-formulated “bolt-ons”
The best answer for business owners is not necessarily switching from the type of construction insurance cover that’s in place, but extending the type of cover.

“We routinely encounter standard Industrial Special Risks policies being relied upon for construction insurance cover across the full spectrum of risk. Any policy of a generic type would be expected to have some gaps in the numerous risk-management scenarios presented by construction projects,” said Jim.

“One way we can really add value to the business is identifying the gaps in the existing type of cover and sourcing bolt-on products to bridge them. Some construction businesses have been put in peril due to the lack of insurance cover when something has gone wrong and the business owner had assumed that the insurance policy would cover any eventuality. Obviously, finding out about a deficit area in coverage only after an incident has happened, it’s too late.”

“The risk and liability scenarios in construction are so great that I’m always happy to help out by reviewing existing coverage and identifying potential vulnerabilities. The number of times I’ve made a recommendation and it has saved the day when something has gone wrong and the necessary cover was in place due to my diligence, it’s a very good feeling,” Jim said.

Interpreting the policy wording for more informed decision-making
“The wording in the policy is all-important and it doesn’t matter if the business is small-time sole trader or a multi-million dollar enterprise, it takes someone with specialist construction insurance knowledge to interpret the policy wording, explain what it all means in real terms, and assist the business owner to make informed risk-management decisions.”