Revised July 2007
WHY AND WHAT INSURANCE IS NECESSARY FOR THE CONSTRUCTION INDUSTRY
Attitudes to insurance vary. Some believe it to be a 'necessary evil'. Others have a strong belief in the protection of their business, which insurance affords. Very few understand it. This is not surprising. An insurance policy is a legal contract which must be expressed in relatively complex legal terms. It is a promise to provide compensation for something which may never happen. However, in the construction industry everyone is aware that accidents can and do happen. Any contractor, without adequate insurance, risks the success of his business. Independent and expert advice is essential. Insurance brokers should be regarded in the same light and with the same degree of importance as a contractor's other professional advisers. Insurance should be regarded as vital to the continued operation of the business. Very few companies and proprietors in the building trade have sufficient capital to meet adversity from their own resources. Whilst risk is inevitable in every business, properly arranged insurance can remove or reduce many of the risks for a small cost compared to the potential liabilities.
This information sheet seeks to provide a basic understanding of the major insurances required in the construction industry.
1. Public Liability. If you injure a member of the public or an independent sub-contractor during the pursuit of your business or accidentally damage surrounding or third party property, the public liability policy will step in to meet claims for compensation made against you. Furthermore it meets all legal costs in connection with settlement or defence of such claims.
Premiums will be based on the type of work undertaken, the size
of the firm and its claims record. Many 'employers' will not
allow a 'contractor' on site until it has been established that
Public Liability cover operates. It is important that an
adequate indemnity limit be arranged. £1 million is the
absolute minimum but £5 million is now considered normal.
2. Employers Liability. This insurance provides cover for claims made against firms by their employees.
At present there is much debate on the changes within this category of insurance regarding the implementation of a limit, where previously Insurers were providing an unlimited indemnity.
The main reason for capping the Employers Liability limit of indemnity is that it is becoming less practical for the provision of an unlimited cover because of changes in employment practises in many industries and the unprofitability of Employers Liability insurance for many years.
A figure of £10,000,000 for any one occurrence to include any legal/defence costs has been mentioned, and for most companies this is likely to be sufficient. However, larger employers who feel that they need a higher limit will be looking to purchase extra cover from the market, either from the Insurer providing the basic cover or from another Insurer prepared to top up the basic cover.
With the introduction of a financial limit, groups of companies will need to consider their Employers Liability arrangements carefully, taking into account which company or companies actually employ the workers and whether the basic cover is adequate for their circumstances.
With sub-contracting becoming more common, Insurers have not found it easy to know just who they are covering and where. This can mean that, when a claim arises, they find they are covering many more people in one location than they would have wished.
The introduction of a financial limit to Employers Liability policies, like most other insurances, will help Insurers keep the cover they provide within the boundaries of their financial capacity. Businesses will need to consider carefully the amount of cover they need.
You are not allowed to trade without Employers Liability
Insurance. This is required by the 1969 Employers Liability
(Compulsory Insurance) Act. You have to display a Certificate
of Insurance at your place of business. Premium rates depend
on the same factors as with Public Liability.
3. Motor Insurance. Company cars, vans, lorries and licensed plant are required by the Road Traffic Acts to be insured for third party liability both for injury and damage. This is understood by most contractors but remember you must have a valid cover note or certificate of insurance.
1. Personal Accident (Working Principals, Partners & Directors). In many businesses the success of the whole venture is heavily dependent upon working principals. In their absence turnover and therefore income will be reduced. Insurance can cover the permanent loss of a key man, permanent disability, the loss of an eye or use of a limb. Temporary disability insurance will provide the payment of a weekly benefit to enable suitable short-term replacement to be obtained. Cover is 24 hours per day for both business and leisure accidents.
2. Contractors All Risks. Contract works, site huts, unfixed materials, tools and equipment are all subject to fire, theft or damage both on and off site. Damage to the contract works can mean carrying out the work for a second time for only one payment - unless you have arranged a Contractors All Risks policy. Valuable plant will have to be replaced from the contractors own resources if stolen - unless he has arranged a Contractors All Risks policy. Premiums depend on turnover, type of work and previous claims record.
3. Plant, Machinery, Tools & Equipment All Risks. This policy covers the contractors plant, from heavy equipment to hand tools. There are various ways of arranging the cover from engineering policies, motor policies and all risks policies or inclusion in Contractors All Risks Policies (see 2 above). Valuable equipment is by definition costly to replace. Why not pay a small percentage of that value and transfer the risks to your insurers? This applies equally to hired plant for which the contractor is liable from the date of hire.
4. Statutory Inspection Contracts. The Health and Safety at Work Acts require the periodic inspection by a competent person of all:-
- pressure plant
- lifting equipment
Each has to be checked that they are working to their safe working pressure or lifting weight to ensure safety of employees and the public from either explosions or loads dropping on them. All compressors, hoists, fork lift trucks and the like must have inspection certificates before they are brought into use.
5. Workshops, Yards and Stores. Buildings and their
contents represent valuable assets of the business and should be
insured against fire, theft and damage. A 'comprehensive'
range of cover is available in a similar fashion to that granted in
respect of a house. Full values need to be calculated to
ensure adequate payment in the event of a claim. The cost
will depend upon the value at risk, the construction, the heating
A fundamental change to the insurance market is the introduction of insurance premium tax by the Chancellor. This is effective from 1st October 1994, and is a 2.5% levy on almost all general insurances, including for example:-
- Buildings and Contents
- Accident and Sickness
- Private Medical
- Liability Insurance
- Travel and Holiday Insurance.
For further information or assistance on Employment, Self-employment, Tax Problems in the Construction Industry, Health and Safety or any other matter Members should contact the Members' Helpline on +44 (0) 20 8977 1105.
For further copies of this or other Information Sheets Members should contact the Membership Department on +44 (0) 20 8977 1105.