The construction industry is the largest non-service related industry, contributing $134.2 billion to the country’s economy. But as with any big industry, construction comes with its own unique set of risks, and correlating insurance solutions.
About construction insurance
Let’s start with the basics. There are two different types of construction policies – a single project policy that insures a one-off project, and an annual policy that insures various works that take place within a 12-month policy period.
There are two insurance options when it comes to annual policies, the first of which is known in the business as a run-off policy, or a projects/ contracts commencing policy. This insures all projects that meet the characteristics specified in the schedule and begin during the policy period, right up until the construction and its defects liability period is complete.
The second option is called a turnover policy, sometimes referred to as a transfer or cut-off policy. This insures all projects being worked on (or planned to be worked on) during the policy period. Any projects completed within the 12 month policy period are followed by the cover provided during the defects liability period (a set period of time after a construction project has been completed, during which a contractor has the right to return to the site to remedy defects). However, if the project isn’t completed within the allocated timeframe, no defects liability period will attach – meaning all projects underway will cease to be insured.
As you can see, knowing the difference between the policies can be crucial for your construction business! This is why many businesses choose to use an insurance broker – to get the experience and advice they need to make an informed decision about their risks and protecting their businesses.
A bundle of bolt-ons
Beyond the basics, it can get interesting. Clients have the option to choose between a standalone construction policy or a bolt-on (extension to the existing policy) approach.
The majority of standalone construction policies have been specifically drafted to suit the Australian construction environment to help you meet the insurance requirements of the standards in Australian construction contracts. A standard ISR (Industrial Special Risks) policy offers about $500,000 worth of construction cover, but there can be considerable gaps in those policies compared to a specialised or tailored product.
Some of the key components to consider include:
- a cross-liability clause – states the insurer will view every single insured like they’ve got their own policy, providing the insurers’ limit of liability doesn’t get any bigger. This is a requirement under the Australian standard of contracts.
- a waiver of subrogation – states that you can’t sue any of the people you have insured as the insurer.
- a non-imputation clause – states that you can’t prejudice one insured party for the breach of a policy condition of another. This is a crucial requirement for a lot of banks and financial institutions in particular, as it ensures they will potentially be paid what they’re owed, even if a subcontractor has breached the conditions stipulated in the contract.
- adequate cover for a vibration removal and/or weakening of support – provides cover up to an adequate limit of liability for vibration damage or third party property damage that results from certain activities that cause vibration. This includes deep excavations, underpinning or the removal of supports.
(Source: Insurance & Risk)
Workers’ compensation and the Australian Work Health and Safety Strategy 2012-2022
Another element of insurance for your construction business (or any business that employs people), is workers’ compensation.
The Australian Work Health and Safety Strategy 2012–2022 was launched on 31 October 2012 and an updated version republished in April 2018 (the amendments are listed here: Australian Work Health and Safety Strategy 2012-2022[1]). The Strategy is underpinned by two key principles: firstly, all workers have the right to a healthy and safe working environment, and secondly a well-designed healthy and safe workplace will allow workers to be more productive. The Strategy set three national targets for 2022:
- 20% reduction in worker fatalities
- 30% reduction in claims (resulting in 1+ weeks off work)
- 30% reduction in claims for musculoskeletal disorders (resulting in 1+ weeks off work)
From the Strategy, seven industries were chosen to prioritise prevention activities due to high rates of incidents. The construction industry was one of the seven and is therefore worth spending some time taking a closer look at in regards to people and safety.
Construction industry safety track record
The construction industry has one of the poorest OHS records out of all industry sectors in Australia, with three workplace fatalities per 100,000 workers and 8.1 serious claims per million hours worked, according to recent Safe Work Australia data.
The nature of work in the construction industry means it is a relatively high-risk industry and this is reflected in both the comparatively high level of fatalities and serious workers’ compensation claims (accounting for 16 per cent of fatalities and 11 per cent of serious claims).[2]
Most fatalities were caused by falls from height (30%), being hit by falling objects (15%) and vehicle incidents (15%). Most major claims were caused by muscular stress from lifting/carrying/setting down and handling objects (31%), followed by falls on the same level (13%).
What does this mean for construction insurance clients?
Analysing the information from the report, there are some clear areas that construction industry insurance clients can focus on to reduce incidents and claims and help make sure workers get home safely.
[1] Source: www.safeworkaustralia.gov.au/about-us/australian-work-health-and-safety-strategy-2012-2022
[2] Source: www.sia.org.au/news-and-publications/news/construction-industry-poorest-ohs-performer-safe-work-australia
Construction risk management
A good construction project plan should always include a rigorous risk management approach. The primary elements of your risk management include a plan for the risk management activities and delineation if your risks, as well as how you intend to identify and document the specific risks and their magnitude to the project. Your risk management approach will then require qualitative and quantitative analysis to allow you to prioritise the potential impact of each risk and inform your decision of how you should manage the risk.
Options for managing a risk once properly analysed can include: eliminate or avoid the risk altogether, transfer the risk (this is where insurance comes in), identify actions that can be modified to help prevent the impact of the risk (i.e. safety equipment, training) and acceptance of the risk if it is an unavoidable risk inherent to the project (more common for low likelihood risks).
Once you’ve set your risk management framework and plan, it’s then a matter of good hygiene around monitoring, reporting and responding to risks, near-misses and incidents.
Some of the key areas that should be addressed in your construction risk management plan include:
- Working at height – how strict are your policies and procedures around ladders, scaffolding and working on top of buildings?
- Manual handling – do you have training in place to reduce risk of back injury from carrying heavy objects?
- Vehicles (both operating in and around) – do you do driver safety training, and have clearly marked safe pedestrian walkway areas?
- Slips, trips and falls – do you review the site for potential tripping hazards, holes or slippery surfaces?
- Noise – where appropriate do you reinforce the need for ear protection, and equally have procedures in place to make sure important communications don’t get lost due to a noisy background?
- Electricity – do you always use qualified electricians to carry out electrical work?
- Collapse – do you complete a site specific risk assessment before you start an excavation to identify what ground support system, shield/wall reinforcement and angles are required for stable excavation and to prevent collapse?
By no means an exhaustive list, hopefully this article has given you some things to think about in regards to protecting your business and your people.
Questions?
You know how to run your construction business, and we know how to insure it. If you have questions or want to get a free comparative quote for construction insurance for your business, don’t hesitate to give us a call on (02) 6892 1050.
The information provided in this blog is general advice only and doesn’t take into account your specific circumstances or personal needs. Insurance policies and coverage differ depending on a number of factors so please talk to your insurance broker before making any decisions about your insurance.