Construction all risks insurance: definition
Construction works insurance, often referred to as site insurance or construction all risks insurance, is a policy that protects a real-estate project throughout the entire construction phase, whether it is a new build, a major conversion or a significant renovation.
In practice, construction works insurance covers, subject to the policy conditions, material damage to the works in progress, to materials already delivered to site and sometimes to certain site installations, when it results from a sudden and unforeseen event: workmanship errors, defective materials, planning errors, adverse weather, vandalism, theft, falling objects, etc.
In other words, construction works insurance is designed to secure the project owner (homeowner, investor, developer) and, where applicable, the main contractor until final handover of the building. It operates at a stage when the value at stake is already very high – the building is partially completed – yet standard covers (liability insurance, trades’ private insurance, etc.) do not cover all risks. That is precisely the role of site insurance: to bridge this vulnerability gap between the start of the works and acceptance of the building.
Why site insurance matters and how it works
For a real-estate project in Switzerland, construction works insurance plays a central role in managing risks during the construction phase. Without site insurance, the owner or investor would have to bear most of the costs of a loss occurring during the works—whether it is a partial collapse, storm damage or vandalism. Such costs can quickly reach tens, or even hundreds, of thousands of Swiss francs, jeopardising the overall budget, the project schedule and, indirectly, the mortgage financing.
With properly sized construction works insurance, extra costs related to repairing the structure, replacing damaged materials or bringing certain elements back into compliance are covered by the insurer, within the limits and deductibles set out in the contract. Construction works insurance may, for example, respond in the event of :
- workmanship errors (poor concrete pouring, incorrectly installed waterproofing, faulty insulation) ;
- defective materials (panels, windows, faulty prefabricated elements) ;
- natural events (heavy rainfall, landslide, storm, hail) ;
- fire or explosion on the construction site ;
- vandalism or theft of materials and equipment.
Many construction works insurance policies also include protection against vandalism and theft on site, as well as certain damage caused by unidentified third parties. In this context, site insurance complements the liability insurance of the various parties involved (architects, engineers, trades), which is not always sufficient to cover all potential damage on a major build.
From the perspective of banks and mortgage lenders, having construction works insurance is often highly valued and, for larger projects, sometimes required. It demonstrates that the main risks during the construction phase have been identified and partly transferred to an insurer. For the investor or future owner, taking out construction works insurance means protecting their down payment, their invested funds and their mortgage financing. It can also reduce delays by enabling swift intervention before, where applicable, pursuing the responsible party.
It is therefore important to analyse the scope of cover of your construction works insurance in detail :
- period of protection (from the start of the works until acceptance of the building, and sometimes until the end of certain construction warranties) ;
- sum insured, which should match the total cost of the works ;
- specific exclusions (for example certain purely aesthetic defects, normal wear and tear, or design errors that are not covered) ;
- amount of the deductible payable by the owner ;
- possible extensions (for example cover for additional costs to mitigate a construction delay).
Depending on the size and complexity of the project, construction works insurance may be taken out by the project owner, by the developer or, more rarely, by the main contractor, with a clear designation of beneficiaries in the event of a claim. In all cases, the purpose remains the same: thanks to site insurance or construction all risks insurance, to secure the real-estate investment until handover.
Full example of construction works insurance
Let’s imagine the construction of a single-family house in Switzerland with a total cost of 1 200 000 CHF including works. The owner, who finances the project partly with a mortgage, decides to take out construction works insurance covering the entire site, from earthworks to handover of the keys. The sum insured corresponds to the value of the works and the building under construction. The site insurance is arranged for the full planned build period, with a deductible of 5 000 CHF per claim.
A few weeks after the start of the structural works, when the ground-floor walls and part of the first floor are already built, a severe storm hits the region. Gusts tear away part of the scaffolding and throw metal elements against the structure under construction. A section of masonry cracks, the formwork of the upper slab is damaged, part of the temporary roof is destroyed, and several pallets of materials stored on site (insulation, bricks, waterproofing membranes) become unusable.
Without construction works insurance, the owner would have to pay for :
- repairing the cracked masonry (partial demolition, rebuilding, structural check) ;
- reinstating temporary weather protection ;
- replacing damaged or unusable materials ;
- additional costs caused by the delay (extended rent for the current home, rescheduling trades, etc.).
The total bill could easily reach 60 000–80 000 CHF, or even more, and put the project’s financing under pressure.
Thanks to the construction works insurance in place, the incident is reported to the insurer. After an assessment, the insurer confirms that the damage is covered under the site insurance policy :
- it covers repairing the structure and restoring the masonry ;
- it reimburses replacement of the affected materials, within the contract limits ;
- it contributes to additional delay-related costs, subject to the special terms of the construction all risks insurance.
The owner only pays the deductible of 5 000 CHF. The works can resume quickly, without calling into question the project’s financial balance or the overall schedule. This example shows concretely how well-chosen construction works insurance protects the project owner and secures financing in the event of a loss before final handover, where simple liability insurance would be insufficient.
