Whilst traditionally it has been the responsibility of the Building Contractor to arrange the Construction insurances, it is becoming increasingly more common for construction insurance to be “Principal Arranged”, affording Property Owners and Developers more control over the risk management process of the build, rather than leaving it in the hands of the Building Contractor.
A standard Construction policy is arranged on either an Annual basis (covering multiple projects in a 12 month period) or on a Single Project basis, covering the one contract, and is broken down into two sections:
Some policies in the market can also extend to cover a number of additional components, such as Advanced Business Interruption.
There are many benefits to a Principal Arranged program, such as clarity of responsibilities, guaranteed coverage and certainty and control when the project is most risk exposed or subject to a claim for loss or damage.
1.Allowing the Principal to engage a specialist construction broker in the early stages of the project to review and analyse the risk management requirements and advise on risk transfer strategies.
2.The ability to select an insurer with good financial security and claim payment ability, broad and quality coverage – not necessarily letting price be the deciding factor, which is often the case with building contractors.
3.Being able to align insurance coverage with contractual requirements and the incorporation of risk transfer clauses.
4.The ability to comply with financiers requirements, enabling the Principal to control the process.
5.The Principal has the benefit of a thorough knowledge of the policy, gained through the review and negotiation process, as well as a broker to advocate for them. This is a huge contrast to a Contractor Arranged program, where usually the Principal is aware of the existence of an insurance policy through the provision of a Certificate of Currency, but has no knowledge of the coverage, what is excluded and uninsured, and has to rely upon what the contractor tells them through the claims process.
6.Protection of the Principal against the Contractor becoming insolvent. Should the policy be Contractor Arranged, the policy would most likely become invalid should the contractor become insolvent, leaving the project uninsured.
7.Providing the Principal with certainty and flexibility around payment of premiums, with the ability to pay the premium in instalments to assist with cash flow.
8.Streamlining the claims process by eliminating the opportunity of disputes between different insurers and their loss adjusters (particularly where multiple contractors are involved). The Principal is involved in every step of the claim process and settlements are paid directly to the Principal.
9.Reduced administrative burden in relation to contractor and subcontractor compliance. Whilst contractors should still hold their own insurances and supply a Certificate of Currency as proof, the stress of ensuring that policies are valid, adequate and meet their contractual requirements is alleviated as all contractors will be covered under the Principal Arranged program for their work on the project. This reduces the Principal’s reliance on other parties’ policies for coverage, and eliminates delays and administrative expenses in following up claims made under others policies.
10.Cost efficiencies. The Principal will be indirectly paying the insurance premium under a Contractor Arranged policy, often with cream on top, with out any input or guarantees of quality cover and claim payment ability. As a Principal Arranged program, the Principal has the benefit of cost transparency to negotiate coverage and premiums to meet their requirements and delivering value for money.
In addition to taking control of the risk management and insurance program, it is imperative for the Principal to engage a broker who has a thorough understanding and experience in arranging construction insurance programs.
Most general insurance brokers will be able to source quotes and place cover for construction risks, but few understand the intent and application of the policy and have the technical ability to manage the program.
When engaging a construction broker, you should ensure the broker is a specialist and is able to:
Planned Cover has established a specialist construction division which provides expertise to Owners, Developers and Contractors, offering an extensive selection of insurance products and services, tailored to meet your needs. With extensive experience as a trusted advisor to the construction industry, let Planned Cover assist you.