Whether it’s the government’s ambitious targets for new homes, construction schemes to meet changes in demand, or simply refreshing existing properties, local authorities and registered housing providers are often overseeing building projects. But, with budgets stretched, having the right insurance is essential.
There’s no one size fits all approach when it comes to insuring construction projects. Insurance requirements will always be shaped by factors such as attitude to risk, budget and the appointed contractors. Failing to take all these points into consideration could leave an organisation seriously exposed if something goes wrong.
A common focus for housing providers is on the direct cost of insurance without an accurate assessment of risk. A transactional approach can result in reduced cover and inadequate limits; both of which could mean further costs if a loss does occur.
Taking a shortcut by relying on existing framework contracts (such as JCT and NEC) without meeting a project’s individual needs can cause expensive issues too.
At Aon, we have seen instances where a reliance on framework contracts has meant that halfway through a construction project, it becomes apparent that the insurance and contracts don’t align. This could have serious financial and reputational implications for an organisation.
Given these risks, a proactive approach to arranging cover for construction projects is essential. Arranging the most appropriate cover, in time, requires due diligence to ensure an accurate assessment of risk.
Top tips to get the right cover for construction projects
Start early
It’s essential to get an early start to collect information and involve your insurance broker or company. Knowing what’s planned well in advance, ideally before the works are tendered, will help you arrange the most appropriate cover and ensure construction contracts reflect correct requirements.
Build your network
Know what’s going on across your organisation. Speak to everyone involved with construction contracts, including property, capital project and legal teams, to outline the importance of early engagement with the risk management team.
Know your limits
Smaller building jobs, such as redecorating a hall or changing the lighting in an office, may be covered under small works extensions to your buildings insurance but it’s important to know exactly how much cover is included. Policies usually only have a low limit: insurers may be able to extend cover in some circumstances but if a project exceeds this or the contract terms dictate, a separate policy will be required.
Understand the project timeline
Gather as much information as possible about the construction project’s timeline, especially for larger works. Insurance requirements can vary across the course of a project and this insight will help to shape the programme.
Comply with your contracts
Whether it’s a JCT or NEC contract, the requirements laid out in these documents will determine the insurance programme. Remember these can be tailored to meet the needs of your project. As well as familiarising yourself with the contract small print, also look at who issues construction contracts and framework agreements within your organisation. Putting controls around this will help keep a handle on the insurance aspect too.
Consider an owner controlled insurance programme
Rather than leaving the insurance arrangements to the contractor, an owner controlled insurance programme (OCIP) can be a more efficient way to protect its interests during a construction project. As well as giving greater control and cover certainty, a local authority can also access delay in start-up protection where the asset being built has a revenue stream. Premium costs for major projects should be the same or better when procured by the owner, with some key protection benefits to OCIPs, even when it’s possible to insure under the contractor’s existing insurance arrangements.
Review the paperwork
As well as understanding the contracts your organisation uses (and who issues them) review the wordings of any template contracts and framework agreements regularly to ensure they stay up to date with your organisation’s needs and practices. Pay attention to project specific arrangements to ensure insurance arrangements are correct and provide the right level of protection.
Tap into your broker and insurer’s expertise
Your insurance broker or insurer will secure the best terms on offer, but their knowledge and expertise can also ensure your contract and cover are structured effectively.
They can also review the contracts your organisation uses, picking up any drafting that could affect insurance and ensuring insurance arrangements and contract wordings align.
Building processes that meet construction demand
Construction projects are likely to increase over the next few years, so having the right processes, contracts and insurance is essential. Knowing you’re covered in the event of a loss will ensure you protect your organisation and help it meet construction demands.
