They say to keep your friends close and your enemies closer because the latter has much to teach us by way of exposing our weaknesses. Is there little wonder that risk is a constant companion of the construction industry?
This may take the form of project delays, equipment breakdowns, or unforeseen accidents. Such risks are by no means hypothetical. They are living realities and it may only be a matter of when instead of if a mishap happens. Even now, studies have determined that future projections are blurry due to a volatile economy and ambiguity regarding the availability of money and resources.
How can such a vast industry deal with the common and uncommon risks plaguing its projects? Insurance is the answer. In this article, we will discuss strategic ways in which construction businesses can select relevant insurance coverage.
Know the Different Types of Construction Insurance
The first place to start is to understand the different basic forms of construction insurance available. Insurers offer a wide variety of products for contractors, developers, property owners, and more. These products may even be suitable for different stages of a construction project.
Let’s look at some of them in detail.
Builders’ Risk Insurance
Also referred to as the course of construction (COC) insurance, this coverage protects builders while a property is under construction. The following kinds of assets can be covered under this insurance type – machinery, buildings, lawns, trees, scaffolding, and foundations.
Most insurers will offer coverage for common projects like new residential buildings, remodeling, and commercial property construction. If a contractor is working on a specialized or unique project, they may have to look for specialty providers.
Keep in mind that this policy only covers certain kinds of damages like those caused by poor weather, fire, or theft. Loss suffered due to flooding or earthquakes will not be covered unless specifically added to the original policy.
General Liability Insurance
This type of construction insurance provides contractors with liability protection in the event of property damage or physical harm. Various versions of this policy may be available to suit specific project needs.
General liability insurance can even protect property owners from unnecessary risk. A broad range of damages may be covered under this policy based on the size of the project. For instance – the coverage for general liability may extend to small artisan contractors as well as mid-sized builders.
Some states may demand that contractors have a minimum liability insurance. According to Commodore Insurance Services, this policy may be available for different types of construction classifications. These may include engineering firms, handyman companies, and specialty contractors.
Errors & Omissions Insurance
This popular insurance product is also known by the name of professional liability insurance. It protects construction companies against mistakes or errors made by their professionals. An example would be an engineer who makes an incorrect calculation of the structure.
The owner may have to suffer losses in the form of costly repairs down the line. In fury, they may choose to sue the engineer for compensation. If the latter has an errors & omissions policy, the same will cover the claim.
Other than these three, construction companies may avail of policies like inland marine insurance, commercial truck insurance, and workers’ compensation insurance.
Understand Project-Specific Needs
Apart from the basic trifecta we just discussed, you may require additional specialized coverage based on the project at hand. This means it is important to assess your current project and determine its complete needs. The following specialized policies are available –
Environmental Liability Insurance
Environmental regulations are getting tighter and ESG is becoming more important than ever. KPMG’s 2023 Global Construction Survey found that 64% of businesses were aggressively pursuing maturity in ESG initiatives.
As these enterprises fully assess the environmental impact of their operations, they must stay protected against claims of pollution. This is not to suggest that any by-products that contaminate the soil or water should be allowed to run wild. In the meantime, environmental liability insurance will keep companies safe against heavy penalties and tough legal battles.
Cyber Insurance
This insurance product is scarcely given much thought since what’s the need for cybersecurity in the construction industry, right? The truth is that cyber insurance may be more important than ever now for contractors. A recent study found that there were twice as many cyberattacks on construction companies in Q1 of 2024 compared to the same period last year.
This can be largely attributed to the rise in digital transactions and advanced tech-based project management tools. Through this policy, any losses incurred via cyberattacks and data violations can be covered.
Take Cues from Your Competitors
Once you have made an internal assessment, it’s time to work your way out. This means don’t quickly jump onto purchasing as many policies as you can think of. Even if you’re confident of your choices, take a closer look at your competitors.
Try to find out what coverage at least your top three competing construction firms are using. It will give you a solid idea of the current industry standard. Besides, you will discover whether your coverage is at par. You might be surprised to know that you need to add or subtract policies from your list.
Assess Your Company’s Value
Choosing the right construction insurance products is always a back-and-forth task. It may be long-drawn and a tough nut to crack but the kernel inside is sweet. In other words, Once you have reviewed your competitors’ insurance policies, get back to your company.
Compare the assets against the liabilities and determine a roughly accurate value of your firm. This is extremely important since your total insurance coverage must be adequate for all assets. Otherwise, if something goes wrong, you may end up losing your valuable assets.
Review Contracts
Before any construction project commences, a contract is signed and mutually agreed upon by the property owner and the contractor. This legally binding agreement is a jewel mine. You can use its contents to understand your specific project requirements better.
As you align your coverage with the unique needs of the project, don’t forget to analyze the broader risks. The coverage for any project must be enough to allow you sound sleep at night but not too much that it drains a hole in your budget.
The above-mentioned strategies should help you invest in the right policy for any construction project. In case you’re wondering about the total cost, the same will depend on numerous factors. Your construction insurance cost will be influenced by your business’ credit history, coverage limits, project size, and location, as well as your industry experience.
Have a new project cropping up soon? Then you have the perfect opportunity to apply the tips mentioned in this guide for fast turnaround and project success.
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