Construction Projects: Understanding the Need for Construction All Risks (CAR) Insurance

Protecting Against Unforeseen Risks

Construction projects are inherently risky, involving complex tasks, heavy machinery, and numerous workers. From design to completion, various hazards exist that could lead to significant financial losses. • Heavy machinery can malfunction, causing damage to materials and equipment. • Weather-related issues, such as heavy rainfall, can damage construction materials. • Accidents involving third parties can result in injuries or property damage. • Natural disasters, such as earthquakes and floods, can cause widespread destruction. • Equipment breakdowns can lead to delays and cost overruns. • Vandalism and theft can result in significant financial losses. • Fire can damage materials and equipment, leading to costly repairs. These risks can be mitigated with the help of Construction All Risks (CAR) insurance. This specialised policy covers a wide array of potential losses and damages that may arise during construction, including:

1. Physical damage to construction works, materials, and machinery.
2. Third-party liabilities arising from accidents or injuries caused during the construction process.
3. Fire, theft, vandalism, natural disasters (acts of God), accidental damage, and equipment breakdown.

CAR insurance can be customised to fit the specifications of a construction project, whether it involves residential, commercial, or infrastructural works. The premium payable will depend on the type of project, location, and other factors.

Importance of CAR Insurance in Kenya

In Kenya, CAR insurance is essential for protecting against property damage, liability, and financial loss. Some of the key benefits of CAR insurance include:

1. Protection against property damage, such as fire, theft, vandalism, and natural disasters.
2. Liability coverage for accidents involving third parties.
3. Financial security for construction projects, ensuring that costs are not excessive.
4. Helps in securing project financing, as it assures stakeholders that the project is protected from unforeseen risks.

Without CAR insurance, construction projects can be vulnerable to significant financial losses, which can lead to delays, cost overruns, and even project abandonment. In Kenya, where construction activity is booming, the need for CAR insurance cannot be overstated.

Incidents Where CAR Would Have Come in Handy

There have been several instances where CAR insurance would have been critical in mitigating financial losses. For example:

“If the project had CAR insurance, the policy would have covered the cost of repairing the damaged property, medical bills for the third-party injured, and even legal liabilities.”

In 2017, a construction crane at a high-rise project in Nairobi collapsed, resulting in significant damage and the tragic death of one person. The incident also led to property damage on surrounding buildings. In 2023, a building in Kisii collapsed, resulting in fatalities and injuries to both workers and passersby. The CAR policy would have been critical in this case, as it would have covered damages to the surrounding properties, medical expenses for the injured (third-party), and compensation to the affected families. In Kenya, contractors, investors, and project owners should prioritise obtaining comprehensive CAR insurance to safeguard their construction projects and ensure a secure and smooth execution.

Best Practices for Contractors

While CAR insurance is essential for protecting against unforeseen risks, it is also important to follow best practices to avoid situations where an incidence has occurred but it was due to poor workmanship or substandard building materials.

1. Hire expertise to do the project, using quality materials for construction.
2. Regularly inspect the construction site to identify potential risks.
3. Develop a comprehensive risk management plan.

In conclusion, CAR insurance is a crucial tool for protecting construction projects against unforeseen risks. By understanding the importance of CAR insurance and following best practices, contractors, investors, and project owners can ensure a secure and smooth execution of their construction projects, while also mitigating financial losses.

In Kenya, as construction activity continues to boom, the need for CAR insurance cannot be overstated. By obtaining comprehensive CAR insurance, contractors, investors, and project owners can safeguard their construction projects and ensure a secure and smooth execution. It is a pricing that is very affordable, and it would have helped mitigate the financial burden on project developers and ensured swift recovery in the face of unforeseen risks.