Construction risks can be complex but securing the right type and level of insurance for clients in the sector can be critical to reduce project risk and maintain business continuity. With brokers playing a pivotal role in identifying risks and creating tailored solutions, Martin Parker, (below) Head of Construction at specialist insurer Markel, explores five essential discussions he and his team needs every broker to have with their clients to ensure they can respond appropriately.
Scope of operations and project types
“A one-size-fits-all policy typically doesn’t work for construction clients,” says Parker. “For us to fully understand what’s needed, we need a clear idea of the client’s full range of operations; whether they are general building contractors, civil engineers, M&E contractors, internal finishing contractors, or offer another type of service.”
Each discipline brings its own unique risks and regulatory considerations and the detail around them is important to inform decision about cover requirements.
Project type is important, for example. Residential, commercial or infrastructure projects will all have different exposures, contract terms and stakeholder requirements.
Contract structures can vary the risk profile too. Understanding if the company is working on fixed-price contracts, cost-plus agreements or under novation arrangements determines liability exposures and potential policy limits.
Subcontractors are key too. Knowing the detail around how many will be used, in which trades and what systems are in place to manage their work will all be valued by an insurer.
Professional designs, advice and design-and-build exposure
“Contractors may require protection against design-related claims if they advise or influence design,” says Parker.
For design-specific firms there are a number of considerations such as whether they produce structural calculations or health-and-safety plans or offer advice to architects, for example. Any design input triggers professional indemnity (PI) exposures and the need for cover, and this could also be needed if the main contractor influences design decisions.
Moreover, it’s important to know the extent to which a general builder is using an external firm/consultant for design work. If they rely on the design of a third party and that design is flawed, the principle firm could be liable for losses.
Contractual requirements and third-party obligations
“Most construction contracts include clauses requiring specific insurance arrangements and, as an insurer, we need the detail around this,” continues Parker.
Question areas will likely include who the named insurer is and whether the main contractor, client, funder or other stakeholders appear on the policy as joint insureds or interested parties.
What minimum limits are required is another area of interest. Some contracts, for example, require £5m or £10m limits for public liability, employer’s liability or PI.
The insurance cover may need to be reviewed in advance and if these details aren’t discussed early, clients risk contractual breaches which can delay bids or project start dates, and even void cover in the event of a claim.
Plant, machinery and on-site risks
“Plant, tools and machinery can be high-risk and high-cost items as well as frequent sources of claims, so this is a critical area from an insurers perspective,” continues Parker.
Is the equipment owned or hired-in? And is the client hiring in plant and equipment with an operator – something that can introduce hire-cover obligations and often expanded liability requirements.
Although all-risk equipment cover is usually required as standard, it’s a detail worth checking. Contractors may wish to limit this cover to certain plant only or take out third party cover in an effort to save costs, despite the cover gap this will leave.
In addition, there are a number of on-site exposures that need to be explored, such as the existence and type of energy sources, the need to work at height (and what height), the extent of excavation, likely traffic management and public access.
This information will impact both liability and property cover and can be used to set appropriate excesses, sub-limits and detailed clauses in the wordings such as cover for hired-in plant including non-owned and own-plant exposure.
Business continuity and financial risk
“With construction projects often vulnerable to interruption and financial risk, it’s important for underwriters to fully assess the situation so that the correct cover can be recommended,” says Parker.
Contract works extensions, for example, consider project delays by including advance loss of profits or delay in start-up (DSU) cover to handle unforeseen events that can impact timelines.
In addition, some contractors may need lenders’ interest extensions or payment protections to safeguard against subcontractors become insolvent, so understanding the likelihood and impact of this happening is important.
Extensions such as these can protect not just physical losses but bring a greater degree of financial stability to a project and protect the contractor’s reputation. Martin Parker is Head of Construction at Markel. See more about Markel’s specialist construction insurance offer.
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