Construction insurance must for firms

The GCC construction industry is booming, but it is a high risk industry. Many owners and contractors across the region are first timers in the industry, and are unsure of what comprehensive cover they need during the different phases of construction.

Owners need to realise the importance of a sound insurance strategy at the very beginning of the project. It minimises the possibility of potential gaps in coverage.

Given the several challenges that could arise during the building phase, developers should demand correct insurance cover from all the parties involved in the construction including contractors, sub-contractors and professional advisers. Contractors should opt to work with sub-contractors who have good loss records and a sound knowledge and understanding of the insurance protection that they purchase.

The primary "must have" cover for owners or contractors is 'Contractors All Risks' insurance - alternatively, it is possible to buy an 'Owners Controlled Insurance Programme'.

Accidents, including personal injuries and property damage, happen all the time, and they can cost the contractor a huge sum of money. These property damage claims are, or could be, covered by the (CAR) policy. The policies insure against physical damage to works, plant, equipment and materials during the course of construction. The CAR clause is not limited by reference to specified perils. Everything is covered unless it is excluded expressly or by implication.

The insured party in a CAR cover usually includes the employer, contractor, sub-contractors and suppliers. All internationally accepted forms of construction contracts state that the contractor will be contractually responsible for any accidental damage to the works, the very risk that CAR policies cover.

Negotiating a prime CAR contract is very important. Contractors are beginning to understand that CAR policies can be a source of revenue down the line, provided correct terms and conditions are in place.

Some key tips to negotiating a prime CAR contract include obtaining a policy in place for the project, having the contractor inspect a copy of the policy, ensuring the policy names the contractor and employer as insured. Additionally, it is important to check if the excesses and deduct-ibles are reasonable and that there are no unusual exclusions from coverage including broker and attorney review.

With Owners Controlled Insurance Programme (OCIP), the principal has the control over the selection of the insurers, excess and deductible levels and the scope of coverage. Also, the insurance is uniform for all parties, there is no possibility for gaps in insurance coverage that have been arranged by the various parties themselves and there are no contractor to contractor claims in respect of damage to each other's works.

OCIP has several advantages such as a more flexible approach from the insurers on the coverage and claims issues, a seamless transition of the project from construction phase to operational phase insurance covers among others.

Insurance for the core construction phase is arranged by the principal and covers the marine/contractor's all risks/third party liability and delay in start up. The contractor's plant and machinery, workmen's compensation, automobile and professional indemnity insurance are arranged by the contractor

- The writer is director of general insurance at Nexus, one of the region's leading financial advisers. Views expressed are the author's own and not necessarily reflect those of Gulf News. If you have questions, please email advice@gulfnews.com.