Guide to Contractors All Risk Insurance Cover

Construction projects involve several moving parts, from labour and machinery to materials and design. Even with proper planning, accidents or unexpected events, such as fire, theft or natural disasters, can disrupt operations and lead to financial losses. Contractors All Risk Insurance offers protection against such unforeseen incidents, ensuring that both contractors and project owners are financially secure throughout the construction period.

What is Contractors All Risk (CAR) Insurance?

A Contractors All Risk Insurance Policy is a cover designed for construction projects. It protects contractors, engineers and project owners from potential financial losses caused by damage to property or third-party liabilities during construction. CAR insurance offers broader protection by combining two types of coverage, such as:

• Material damage cover: It provides compensation for physical loss or damage to the contract works, construction equipment or materials on-site.
• Third-party liability cover: It covers legal liabilities arising from third-party injury, death or property damage caused by construction activities.

This dual protection makes CAR insurance an essential safeguard for any party involved in construction work.

What are the inclusions and exclusions of Contractors All Risk Insurance?

CAR insurance policies cover a wide range of perils but also have certain exclusions. It is important to understand what the policy protects against and what it does not.

Inclusions

A CAR policy generally covers:

• Accidental damage to the project site: Covers loss or damage to the contract work from unexpected events such as fire, explosion, theft, storm, flood or collapse.
• Damage during construction or installation: Covers losses caused while setting up equipment or handling construction machinery.
• Third-party liability: Protects against legal costs or compensation claims from third parties injured or whose property is damaged during the project.
• Temporary structures and materials: Provides coverage for scaffolding, site offices and materials stored at or near the site.
• Machinery breakdown: Covers sudden and accidental breakdown of construction machinery and tools.

Note: This is an indicative list. Please read the policy wordings for the complete list of inclusions and exclusions.

Exclusions

Typically, CAR policies exclude:

• Normal wear and tear: Damage resulting from a gradual deterioration or ageing of materials.
• Design defects: Losses caused due to faulty design or poor workmanship.
• War and nuclear risks: Any loss or damage due to war, invasion or nuclear contamination.
• Wilful negligence: Damage intentionally caused by the contractor or employees.
• Consequential losses: Indirect losses such as project delays or penalties unless specifically covered.

Note: This is an indicative list. Please read the policy wordings for the complete list of inclusions and exclusions.

What factors influence the cost of Contractors All Risk Insurance?

The premium for a CAR policy depends on various factors related to the project and its risks. Some of the main factors include:

• Project type and size: Larger or more complex projects typically attract higher premiums due to increased risk exposure.
• Project duration: Longer projects may face higher premiums as the likelihood of an incident increases with time.
• Location: Projects located in flood-prone or high-risk areas may have higher premiums.
• Sum insured: The total value of the contract, including labour, materials and machinery, influences the insurance cost.
• Safety measures: Sites with strict safety protocols and compliance with regulatory standards may benefit from lower premiums.
• Claims history: A contractor’s previous claims experience can also affect the premium calculation.

Insurers assess these and other factors to determine the level of risk and set the premium accordingly.

How to file a claim under Contractors All Risk Insurance?

If an incident occurs, it’s important to follow the proper claim process to ensure smooth settlement. While the procedure may vary slightly between insurers, the general steps are as follows:

• Notify the insurer immediately: Inform your insurance provider about the loss or damage as soon as possible.
• Submit documentation: Provide details such as the policy number, project details, date and nature of the incident and estimated loss.
• Inspection and assessment: The insurer may appoint a surveyor to inspect the site and assess the extent of damage.
• Provide supporting evidence: Submit photos, invoices or repair bills to substantiate the claim.
• Claim settlement: Once verified, the insurer processes the claim and compensates the insured as per the policy terms.

Timely communication and accurate documentation help ensure faster claim resolution.

Conclusion

Contractors All Risk Insurance serves as a financial safeguard for construction projects, offering coverage for both property and third-party risks. It helps contractors, engineers and project owners manage unforeseen losses that could otherwise disrupt project timelines and finances.

Before purchasing a policy, it’s important to understand the inclusions, exclusions and claim procedures outlined in the policy wording. Each insurer may offer variations in coverage and terms, so thoroughly reviewing the details ensures the protection aligns with your project’s needs.

FAQs

• Who should purchase contractors all risk insurance?

CAR insurance is typically purchased by contractors, project owners, builders or engineering firms involved in construction or installation projects.

• Is contractors all risk insurance mandatory in India?

It is not legally mandatory in all cases. However, many project owners and government contracts require contractors to have this cover before work begins.

• What types of projects are covered under a CAR policy?

A CAR policy can cover a range of construction activities, including residential buildings, commercial complexes, bridges and roads. The exact coverage depends on the insurer and the policy’s terms.

• Can I add coverage for specific equipment or risks?

It depends on the insurer. Some insurers offer add-on covers for specific equipment, machinery or risks. It’s best to check the policy wording or contact your insurer for details.

• How long does the coverage last?

The coverage usually runs from the project's start date to completion or handover. However, the duration may vary based on the policy and project schedule.

Disclaimer: The information provided in this blog is for educational and informational purposes only. It is advised to verify the currency and relevance of the data and information before taking any major steps. Please read the sales brochure / policy wordings carefully for detailed information about on risk factors, terms, conditions and exclusions. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.