Why construction all risks insurance is key for projects
Opinion
By
Loise Ngethe
| Apr 10, 2025
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.
In Kenya, one way to mitigate these risks is through Construction All Risks (CAR) insurance. This specialised policy covers a wide array of potential losses and damages that may arise during construction.
What is CAR insurance?
Construction All Risks insurance is a comprehensive policy designed to cover physical damage to construction works, materials, and machinery during the construction process.
It also provides coverage for third-party liabilities arising from accidents or injuries caused during the construction process.
The policy covers risks such as 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, which in turn will determine the premium payable.
Importance of CAR Insurance in Kenya
- Protection against property damage
Construction sites are susceptible to various forms of damage, ranging from fires to weather-related issues.
In Kenya, where weather patterns can be unpredictable, especially with heavy rainfall, thanks to climate change, CAR insurance ensures that builders are financially protected from damage to both the site and materials.
For example, if heavy rains cause flooding and damage construction materials, the insurance will cover the cost of replacement.
- Liability coverage
Accidents involving third parties can result in injuries or property damage. For instance, if a construction crane malfunctions and causes a car accident on a nearby road, the third-party liability aspect of CAR insurance would cover the compensation claims, protecting the builder from legal and financial repercussions.
- Financial security
Construction projects require a substantial investment, and any setback or damage can lead to delays and cost overruns.
By ensuring comprehensive insurance coverage, contractors and investors can avoid the financial strain that might otherwise derail a project.
Without insurance, the costs of repairing or replacing damaged equipment and materials could result in significant losses.
- Helps in securing project financing
Financial institutions and investors often require proof of adequate insurance before releasing funds for a construction project. Having CAR insurance in place can make securing financing easier, as it assures stakeholders that the project is protected from unforeseen risks.
Incidents where CAR would have come in handy
- The 2017 Nairobi Skyline crane accident
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.
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.
- Kisii building collapsed on April 6.
Just a few days ago, 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. It could have helped the project owners recover from the financial losses caused by the halted project.
As much as you have a CAR in place, you have an obligation to hire expertise to do the project and use of quality materials for construction to avoid situations where an incidence has occurred but it was due to poor workmanship or substandard building materials which is usually an exclusion in the policy.
In Kenya, where construction activity is booming, the need for CAR insurance cannot be overstated. It provides crucial protection against physical damage, liability, and financial loss.
It would have helped mitigate the financial burden on project developers and ensured swift recovery in the face of unforeseen risks.
Contractors, investors, and project owners should prioritise obtaining comprehensive CAR insurance to safeguard their construction projects and ensure a secure and smooth execution not to mention the pricing is very affordable.
-The writer is an insurance expert