Property Development Insurance
A development is insured as a thing being built rather than a thing that exists. The value rises week by week as materials arrive and work is done, so the sum insured has to be the completed contract value rather than what is standing on site today.
Responsibility for arranging insurance should be established under the building contract. Under the JCT forms the obligation sits with either the employer or the contractor depending on which option applies, and a common issue is uncertainty over which party is responsible for arranging the cover.
The risk does not end at practical completion. Unsold units are finished buildings standing empty, which is a different exposure again, and the structural warranty that buyers and lenders require should be considered at an early stage, as providers may require inspections during construction.
We can advise developers, from a single conversion to a multi unit scheme, on contract works, liability, warranty and the cover that follows completion while units remain unsold.
Common claims and risk exposures
The exposures that produce claims in this trade, rather than a generic list.
Value rising through the build
A site insured for its value in month one is underinsured by month six. Contract works should be written for the full contract value including materials, professional fees and any free issue items, so that a total loss late in the programme is met in full.
Fire during construction
A building under construction has no compartmentation, no detection and often no water supply, with timber, insulation and packaging on site. Timber frame in particular is at its most vulnerable between erection and the fitting of plasterboard.
Theft of materials and plant
Copper, cable, boilers, kitchens and plant are taken from sites overnight. The loss is rarely just the value: a stolen kitchen delays the programme and the delay costs more than the units did.
Injury to the public and to trespassers
Sites attract people who should not be there, including children. The occupier's duty extends to trespassers in some circumstances, and hoarding, lighting and securing openings are what an insurer will ask about after an incident.
Unsold units after completion
At practical completion the contract works cover ends, and what remains is finished property standing empty. Developers frequently discover the gap when a completed unit is damaged before it sells.
The cover we arrange
We arrange insurance around the property, its use, construction, occupancy and ownership structure. The cover available will depend on the individual risk and the terms offered by insurers.
Contract works
The permanent and temporary works, materials on site and works in progress, written for the full contract value. On a development this is the core section and the one whose sum insured most often lags the programme.
- Full contract value including fees
- Materials on site and works in progress
- Temporary works and hoarding
- Free issue materials where applicable
Public liability
Injury and damage to third parties arising from the works, including neighbouring property. £5m is a common minimum on development and £10m is frequently specified by contract or by a funder.
- Injury to the public and neighbours
- Damage to adjoining property
- Limits commonly £5m or £10m
- Trespassers, including children
Employers' liability
Legally required where there are employees, and it extends to labour only subcontractors, who are treated as employees for this purpose. £10m as standard.
- Legally required, £10m as standard
- Labour only subcontractors included
- Site injury claims
- Legal representation at inquest
Structural warranty
Ten year cover on the completed building against structural defects, which lenders require before they will lend on a new home. Arranged at the outset because it involves inspection during construction, not afterwards.
- Ten year structural cover
- Required by most mortgage lenders
- Inspections during construction
- Must be arranged before works start
Unsold units and completed stock
Cover for finished buildings held pending sale, on terms appropriate to empty property, with inspection and security conditions while they stand vacant.
- Finished units awaiting sale
- Unoccupied terms and conditions
- Show homes and their contents
- Liability to viewing buyers
What an underwriter will ask
Having these to hand shortens the process considerably, and usually improves the terms.
- Contract value, the programme, and the start and completion dates
- What is being built: new build, conversion, extension, or demolition and rebuild
- Construction method, and whether timber frame or modular
- Whether the site is in use, adjoining occupied buildings, or near a highway
- Site security: hoarding, gates, lighting, CCTV and whether it is monitored
- Who is contracted to insure the works under the building contract
- Number of units, and how many are expected to be unsold at completion
- Developer's experience, previous schemes and claims history
What affects the cost of your insurance?
The main factors insurers consider when assessing the premium.
Contract value and duration
The two main inputs. A longer programme means more exposure to weather, theft and fire, and phased schemes are rated on the peak value at risk rather than the total across all phases.
Construction method
Timber frame is rated higher during construction because of the fire exposure before plasterboard goes on. Masonry and steel frame rate more favourably at the same value.
Site security
Hoarding, monitored CCTV, lighting and controlled access all reduce the theft and arson exposure, which on a development is where the frequency sits even though fire is where the severity is.
Adjoining property and location
A site hard against occupied buildings or a public footway carries a far greater third party exposure than one standing alone, and the liability rating reflects it.
Conditions and exclusions to consider
Terms vary between insurers, so treat these as the questions to ask rather than a description of any one policy.
Defective workmanship and materials
The cost of putting right defective work is generally excluded, though resulting damage to other parts of the works is usually covered. This is the distinction that decides most disputed contract works claims.
Cover ending at practical completion
Contract works cover finishes when the works do. Completed units then need property cover on their own terms, and the gap between the two is a common and entirely avoidable exposure.
Neither party arranging the works cover
Where the contract places the duty on one party and both assume it was the other, nothing is insured. Reading which JCT option applies before work starts is one of the most effective ways to avoid this issue.
Existing structures on a conversion
Where the development converts an existing building, that structure is not contract works. It needs its own cover, and the interaction between the two is dealt with on the renovation page.
Common questions
Who insures the works, us or the contractor?
The building contract decides. The JCT forms place the obligation on the employer or the contractor depending on which insurance option applies, and for works to an existing building the employer usually carries the existing structure. Settle it in writing before work starts, because the common failure is both sides assuming the other did it.
What sum insured should contract works be written for?
The full completed contract value, including professional fees, debris removal and any materials you supply free of charge, rather than what is standing on site today. A site insured for its month one value is underinsured for the rest of the programme.
When do we need to arrange a structural warranty?
Before work starts. Warranty providers inspect during construction, so it cannot be bought once the building is finished, and most lenders will not lend on a new home without one. It is the item most often left too late.
What happens to cover when the build finishes?
Contract works cover ends at practical completion. Anything unsold becomes a finished building standing empty, which needs property cover on unoccupied terms with the inspection and security conditions that go with it.
How do I get a quote from True Risk Solutions?
Call 01304 262880 and speak to a broker, or email info@truerisksolutions.co.uk with what you do, what you need cover for and a phone number with the best time to call, and a broker will call you back. We need a phone number to quote, because the cover and the price depend on questions that are quicker to answer on a call than by email.
Speak to a specialist who understands your industry
Tell us about your business and the work you undertake, and we will come back to you with cover options built around it. Call 01304 262880, or email us with a phone number and the best time to call and a broker will ring you back.