Contractors All Risk Insurance

Key Takeaways

• Contractors All Risk Insurance provides comprehensive protection against covered construction project risks, including material damage and third-party liability.
• Coverage, exclusions and add-ons determine the actual protection available, so policy terms, sub-limits, deductibles and warranties should be reviewed carefully.
• Contractors, developers, infrastructure businesses and other project participants can consider Contractor All Risk Insurance based on their project requirements.
• CAR premiums depend on project-specific factors such as project duration, location, sum insured, safety practices and claims history.
• A quote should not be compared on premium alone. Coverage, insurer capacity, claims reputation, service, clauses and excess structure are also important.
• CAR and EAR policies serve different project needs, making it important to choose the policy based on the nature and requirements of the construction or erection project.

What is Contractor All Risk (CAR) Insurance?

Contractor 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.

It 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.

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

Pro Tip

CAR protects the principals and contractors on a civil engineering project against accidental physical loss or damage to the works, plus ancillary liability to third parties. Cover runs from the arrival of the first consignment of materials (or start of work, whichever is first) through construction and into the maintenance period, one policy responding to almost every insurance need of the build.

Different Projects, Different Hazards

Construction projects vary significantly in their scope, location and risk exposure. Contractor All Risk Insurance can help protect projects across different stages of construction, from residential buildings and hospitals to tunnels, airports and bridges. 

What are the Inclusions of Contractors All Risk Insurance?

Contractors All Risk Insurance provides broad protection against sudden and unforeseen losses during the construction period, subject to the policy terms and exclusions.

Fire & Allied Perils

Protection against loss or damage caused by fire, lightning, explosion, and other covered fire-related events.

Accidental Damage

Covers accidental physical loss or damage to construction works, materials and other insured project assets during the policy period.

Natural Calamities

Protection against events such as floods, storms, cyclones, earthquakes, landslides and other covered natural perils.

Collapse, Collision & Impact

Covers accidental damage resulting from structural collapse, collision, impact or similar incidents occurring during construction.

Theft & Burglary

Provides cover for theft or burglary of insured construction materials, equipment and other property at the project site, subject to policy conditions.

Third-Party Liability

Covers the legal liability of the insured for accidental bodily injury or property damage caused to third parties during project execution.

CAR Policy Coverage at a Glance

What are the Exclusions of Contractors All Risk Insurance?

Contractors All Risk Insurance does not cover every type of project loss. The following are some common exclusions, subject to the specific policy wording.

General Exclusions

• War, invasion, civil war and nuclear risks
• Intentional damage or wilful misconduct
• Gross negligence by the insured
• Complete or partial cessation of work
• Consequential losses and loss of profit
• Project abandonment

Material Damage Exclusions

• Normal wear and tear or gradual deterioration
• Faulty design or defective materials
• Loss caused solely by defective workmanship
• Rectification of defective work itself
• Contractual penalties and other purely contractual liabilities
• Losses that are not the result of an insured accidental event

Third-Party Liability Exclusions

• Liability arising from contractual obligations beyond the policy's coverage
• Injury to employees where the liability falls under applicable workers' compensation provisions
• Damage to property owned by or in the custody of the insured, where excluded by the policy
• Claims arising from the use of vehicles, aircraft or watercraft where separately insured or excluded
• Fines, penalties and punitive damages

CAR Policy Exclusions at a Glance

Optional Add-Ons Under Contractor All Risk 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

Risks Covered Under Contractor All Risk Insurance

What are the Benefits of Contractors All Risk Insurance Policy?

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.

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.

Contractors All Risk Insurance: From Theory to a Live Quote

An actual CAR request-for-quote shows how the coverage, clauses, warranties and insurer terms come together when evaluating a construction project.

Project Snapshot

What the Quote Comparison Shows

In this example, all three insurers of contractor all risk insurance offered identical terms and the same premium of approximately INR 5.1 lakh + GST. This means the decision does not come down to price alone.

The key considerations are the insurer's capacity or consortium arrangement, claims reputation and service. For a large construction project, these factors can be important when evaluating the practical value of a CAR policy.

What to Check in a Contractor All Risk Insurance Quote

A quotation should be reviewed from top to bottom rather than looking only at the premium. The key points to check include:

1. Sum insured – Check that the insured value reflects the project's required valuation basis.
2. Add-on covers and sub-limits – Review which additional covers are included and the applicable limits.
3. Clauses – Understand the clauses attached to the quotation and how they affect the scope of cover.
4. Excess structure – Check the applicable excess or deductible for different types of losses.
5. Warranties – Review the warranties and conditions that need to be complied with during the policy period.

In this example, the quotation is valid for 15 days. The terms also specify no mid-term participation, while sum-insured bifurcation is required in the policy.

The key takeaway is that a CAR quotation should be evaluated on the complete structure of the cover, not just the premium. Coverage, sub-limits, clauses, excesses, warranties, insurer capacity, claims reputation and service should all be considered before selecting the policy.

Contractor All Risk 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.

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. 

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.

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

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