Need for insurance during construction

Insurance transfers the financial risk of loss during construction from the contractor and owner to an insurance company, in return for a premium. Construction involves many uncertain events, so insurance is necessary.

Reasons

1. Covers physical loss and damage to the works, materials and equipment from fire, flood, earthquake, landslide, theft, and storm: Contractors' All Risk (CAR) insurance is the common policy.
2. Third-party liability: pays compensation for injury or damage to the public or neighbouring property.
3. Workers' compensation and accident insurance: covers injury or death of workers, as required by the Labour Act and contract conditions.
4. Protects the financial position of the contractor, so that a big loss does not cause bankruptcy or stoppage of the project.
5. Contract requirement: the public procurement documents require the contractor to insure the works, equipment and workers.
6. Reduces disputes about who pays for the loss and keeps the project going after an accident.
7. Confidence for lenders and the client, which helps to get finance and bank guarantees.
8. Other insurances: transit (marine) insurance for materials, professional indemnity for the designer, equipment (machinery breakdown) insurance.

Example: a heavy rain washes away part of an embankment; the CAR policy pays for reinstatement, so the contractor can complete the work without a major loss.