Contractors All Risk Insurance (CAR)

What is CAR Policy?

A Contractors All Risk (CAR) Policy, also known as Contractors All Risk Insurance, is a comprehensive insurance solution designed specifically for construction projects. It offers financial protection against a wide range of risks that contractors, builders, and project owners may encounter during the construction phase.

A CAR Policy is intended to cover accidental loss or damage to the project works, construction materials, equipment, and temporary structures, while also providing protection against third-party liabilities arising from construction activities. It helps minimize the financial impact of unforeseen events such as fire, theft, floods, storms, and accidental damage that could otherwise disrupt project progress.

What is CAR policy in construction?

Construction projects are exposed to numerous risks throughout their lifecycle, ranging from accidental damage at the site to claims made by third parties. A Contractors All Risk (CAR) Policy addresses these uncertainties by offering broad financial protection against losses that may impact the project's progress, budget, or stakeholders.

The coverage under a Construction All Risk Insurance Policy is broadly classified into the following sections:

Material Damage

• Loss, harm, or devastation of property (excluding packing materials) specified in the policy schedule.
• Losses arising from accidental causes not specifically excluded under the policy.
• Damage to construction materials, temporary structures, and project works.

Third-Party Liability

• Legal liability arising from accidental property damage caused to third parties.
• Legal liability resulting from bodily injury, disability, or death of third parties during project execution.

Fire Group of Perils

Coverage against:

• Fire
• Bush fire
• Explosion
• Implosion
• Impact damage

Act of God (AOG) Perils

Coverage against natural calamities such as:

• Earthquakes
• Volcanic eruptions
• Storms
• Cyclones
• Tempests
• Floods
• Inundation
• Landslides
• Rockslides

Social Perils (SRCC)

Coverage for losses caused by:

• Burglary and theft
• Riots
• Strikes
• Civil commotion
• Malicious damage

CAR Policy Inclusions (Coverage) at a Glance

CAR Policy Exclusions

The exclusions under the Contractors All Risk Insurance Policy are as follows:

• War and nuclear risks
• Partial or total work stoppage
• Intentional acts or gross negligence by the insured
• Faulty workmanship or defective materials
• Contractual liabilities and penalties
• Losses arising from design defects
• Damage due to normal wear and tear
• Losses involving licensed vehicles, aircraft, or watercraft
• Consequential losses and loss of profit
• Project abandonment

CAR Policy Exclusions at a Glance

Optional Add-Ons Under CAR Insurance

Policyholders can extend their coverage through various add-ons available under the Contractors All Risk Insurance Policy.

Property & Asset Protection Covers

• Damage to the surrounding property
• Construction plant and machinery cover
• Temporary storage cover
• Inland transit cover

Maintenance & Defect Covers

• Maintenance period cover
• Extended maintenance cover
• Rectification of defects during maintenance

Project Cost Protection Covers

• Debris removal expenses
• Escalation clause
• Fire-fighting expenses

Special Risk Covers

• Terrorism cover
• Drilling work cover
• Marine offshore works cover

Benefits of Contractors All Risk Insurance (CAR)

Considering the unique risks involved in construction projects, a Contractors All Risk Insurance Policy offers several advantages:

Comprehensive Project Protection

Provides coverage for project works, construction materials, temporary structures, and associated assets.

Third-Party Liability Protection

Protects businesses against legal liabilities arising from accidental bodily injury or property damage to third parties.

Contract Compliance

Many project owners, government agencies, and lenders require CAR Insurance as part of project contracts.

Financial Risk Management

Helps reduce the financial impact of unforeseen losses during project execution.

Business Continuity

Ensures that construction activities can continue with minimal disruption after covered incidents.

Enhanced Credibility

Demonstrates strong risk management practices to clients, investors, and stakeholders.

CAR Insurance Claim Process

Follow the steps below to file a claim under the Contractors All Risk Policy:

Step 1: Claim Intimation

Immediately notify the insurer about the incident and take necessary measures to prevent further loss.

Step 2: Claim Registration

Submit the claim form along with policy details and incident information.

Step 3: Surveyor Appointment

The insurer appoints a surveyor to assess the extent and cause of the damage.

Step 4: Documentation Submission

Submit required documents, including:

• Policy copy
• Incident report
• Photographs of damage
• Project details
• Repair estimates
• Additional documents requested by the insurer

Step 5: Claim Assessment

The insurer evaluates the claim based on policy terms and survey findings.

Step 6: Claim Settlement

Upon approval, the insurer releases the claim amount as per policy conditions.

Factors Affecting Contractors All Risk Insurance Premium

The premium of a Contractors All Risk Insurance Policy is determined by several project-specific factors.

Project Type and Complexity

Large infrastructure projects, industrial facilities, bridges, tunnels, and high-rise buildings generally carry higher risks and may attract higher premiums than smaller residential projects.

Project Duration

As the project duration increases, the likelihood of losses arising from accidents, natural calamities, or third-party liabilities may also increase.

Project Location

Construction sites located in flood-prone regions, coastal areas, seismic zones, or locations exposed to extreme weather conditions may require higher insurance premiums.

Sum Insured

The total project value, including construction costs, materials, labour, machinery, and equipment, directly impacts the premium. Higher sums insured generally result in higher premium amounts.

Safety and Risk Management Practices

Projects that follow strong safety protocols, maintain regulatory compliance, and implement effective risk management measures may be viewed more favourably by insurers, which can positively influence premium pricing.

Claims History

A contractor's past claims experience may also affect premium calculations. Businesses with a strong risk management record and fewer historical claims may receive more favourable terms from insurers.

Real-Life Examples of Contractors All Risk Insurance

Fire at a Construction Site

A short circuit in temporary electrical wiring at an under-construction commercial building causes a fire, damaging cement bags, steel materials, and partially completed structures. In such a situation, a CAR Insurance Policy can help cover the cost of repairing the damaged work and replacing the affected materials, reducing the financial burden on the contractor.

Flood Damage

During the monsoon season, a bridge construction project located near a river experiences severe flooding. The rising water damages stored construction materials, machinery, and sections of the completed work. Subject to policy terms and conditions, CAR Insurance can help cover the expenses incurred in restoring the damaged assets and resuming construction activities.

Third-Party Property Damage

While excavating the foundation for a high-rise building, construction activities accidentally cause cracks in a neighbouring residential property. The property owner files a compensation claim against the contractor. The third-party liability section of the CAR Policy can help cover the legal liability and compensation costs arising from such incidents.

Theft of Materials

A contractor stores copper cables, steel rods, and other construction materials at the project site for an upcoming phase of work. Overnight, a group of thieves breaks into the site and steals the materials. Depending on the policy coverage and circumstances of the loss, CAR Insurance may help reimburse the financial loss suffered by the contractor.

Collapse of Temporary Structures

At a large infrastructure project, strong winds cause scaffolding and temporary support structures to collapse, damaging a portion of the ongoing work and construction equipment. A CAR Policy can help cover the cost of clearing debris, repairing the damaged sections, and reinstating the temporary structures so that work can continue with minimal disruption.

Who Needs a Contractor’s All Risk Insurance Policy?

A Contractors All Risk Insurance Policy is suitable for:

Construction Stakeholders

• Contractors
• Builders
• Developers
• Construction companies

Engineering & Infrastructure Businesses

• EPC contractors
• Infrastructure companies
• Industrial project developers

Project Participants

• Project owners
• Companies financing construction projects
• Subcontractors involved in project execution

CAR vs EAR Policy

Both Contractors All Risk (CAR) Insurance and Erection All Risk (EAR) Insurance fall under engineering insurance, but they serve different purposes.

Contractors All Risk (CAR) Insurance

Primarily covers civil construction activities such as buildings, roads, bridges, and infrastructure projects.

Erection All Risk (EAR) Insurance

Focuses on the installation, erection, testing, and commissioning of machinery and equipment.

Businesses involved in engineering and industrial projects should choose the policy based on the nature and stage of their project.

For a detailed comparison, read:
Contractor All Risk vs Erection All Risk – Understanding the Key Differences

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