There are some common issues with contract works insurance (sometimes called builders all risk insurance by banks) that all builders should be aware of. This article outlines two more traps to watch out for.
“It’s important you make your clients aware that they must arrange house insurance from the point of practical completion.”
Mind the gap between practical completion and getting a CCC
As we mentioned in the previous article, a contract works policy will expire on the EARLIER of:
- the policy end date,
- practical completion,
- when the owners start using the building,
- if a spec, when 95% of the budget is spent
Some house insurers will only insure a property that has a CCC, which means there could be a gap in cover between the time the property is practically complete, and the date the house insurance is arranged from (ie. when the CCC is issued).
SOLUTION: Make your clients aware that they must arrange house insurance from the point of practical completion, you cannot rely on the contract works insurance covering the building once it is practically complete.
“The cost of a policy extension may be higher than if you’d arranged it correctly before the build started.”
You may not be able to get cover if you’ve already started work
We have had a number of builders call us recently because they’ve been building their own houses without insurance, but need finance to finish them and the bank is demanding proof of contract works insurance.
Insurers are reluctant to provide cover after a project has started. This is because the cost of a claim towards the end of a project is higher than the cost at the start (the value of what’s on site increases over time) and they don’t like being asked to only insure the most risky period of the build.
They will require lots of extra information before agreeing to provide cover and the cost may well be higher than if you’d arranged it before the build started. What’s worse, they may even decline to provide cover, complicating the builder’s finance arrangements.
SOLUTION: Arrange contract works insurance BEFORE you start building.