Construction All-Risk (CAR) Insurance

Construction All-Risk (CAR) insurance is a specialist project insurance policy that covers physical damage to the permanent and temporary works, contractor's plant and equipment, and third-party liability for injury or property damage occurring during the construction period, typically until the works are handed over and the defects liability period begins.

What is Construction All-Risk (CAR) Insurance?

CAR policies are designed for the specific risk profile of construction projects: the insured asset does not exist at policy inception and is being built over time, the work involves multiple subcontractors, the site changes daily, and both the contractor and the employer have a financial interest in the completed structure. A standard CAR policy therefore names both the employer (buyer) and the contractor as co-insured parties, so that a fire, flood, collapse, or accidental damage during construction triggers a claim without a dispute over whose negligence caused it.

On development-bank-financed civil works projects, CAR insurance is almost universally mandatory and is specified in the FIDIC contract conditions, which are the standard contract form used by most MDBs for works. The policy must be in place before the contractor takes possession of the site, must cover the full replacement value of the works at completion (not the contract price, which may be lower than replacement cost in high-inflation environments), and must remain in force through the defects liability period for third-party liability cover. insurance-requirements-tender sets out how buyers specify these requirements in the tender; risk-allocation-contract explains why the contractor, not the employer, is typically required to obtain and maintain the policy.

Why CAR Insurance matters for bidders

CAR insurance is a significant cost line on large civil works bids, typically ranging from 0.1 to 0.5 percent of contract value depending on project type, location, and risk profile. Underestimating this cost reduces your margin; failing to obtain it on time delays mobilisation. The practical discipline is to approach a specialist construction insurer or broker during bid preparation, not after award, to get an indicative premium and confirm that cover is available in the project country at the required limits. Some high-risk countries (active conflict zones, areas with very high flood frequency) can have limited insurer appetite, which affects premium significantly. If the tender requires the insurer to meet a minimum credit rating, verify that your preferred insurer qualifies before the bid is submitted.

FAQ

What is the difference between CAR insurance and a performance bond?

A performance bond (or performance-security) is a financial guarantee that the contractor will complete the contract; it pays the buyer if the contractor defaults. CAR insurance pays for physical damage to the works regardless of fault and is not triggered by contractor default.

Does CAR insurance cover professional design errors?

Standard CAR policies exclude design defects. Professional design liability is covered separately by professional-indemnity-insurance, sometimes called PI or E&O cover, which is a separate policy requirement on design-and-build contracts.

Who typically obtains CAR insurance, the buyer or the contractor?

On most international civil works contracts following FIDIC Red Book conditions, the contractor is required to obtain and maintain the CAR policy, naming the employer as additional insured. Some buyers on very large projects elect to obtain an owner-controlled insurance programme (OCIP) instead, covering all contractors under a single policy.