Annual Contract Works Insurance may sound difficult to understand at first but it isn’t really.
Types of Cover
- Run-off Policy: Automatically covers eligible projects from start to finish, ensuring continuity even if the policy is not renewed.
- Transfer Policy: Requires endorsements to cover projects started before the policy inception and modifies premium calculations.
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Table of Contents
Annual Contract Works Insurance Types Explained
If you need to learn about the basics of Contract Works Insurance, you can read it here.
As a builder, you have two ways to insure your projects under construction, run-off basis and transfer basis.
Run-off Policy
A run-off policy says, you may start any project within the policy period so long the type of the project, the estimated cost of the project and the duration etc. meets a certain criteria that has been agreed upon by the insurer.
At the end of the policy term, even if you don’t renew the policy, it will continue to cover eligible projects till they finish or until the construction period time is reached.
These type of policies provide a level of continuity of cover so long the projects aren’t going to be the ones that get massive delays.
Transfer Policy
Covers projects only during the policy period, with specific endorsements for partly completed projects and changes the premium calculations.
Advantages of Run-off Policies
- Continuity of Cover: Ensures ongoing coverage and stable pricing.
- Risk Management: Avoids complications with different policy wordings and risk pricing when changing insurers.
Challenges with Transfer Policies
- Premium Calculations: New underwriters may require additional premiums for completed parts of projects. As this type of policy results in a new underwriter providing cover to a project that was initially commenced under a policy of another insurer, there can be pricing and underwriting challenges.
- Claims Handling: Potential disputes over the date of loss or occurrence, leading to complications between insurers.
Who needs an Annual Contract Works Insurance Policy?
Many builders take out a single project contract works insurance when they start their careers. What we have noticed is that within 12 to 18 months from when they start their business, they have other projects lined up, ready to go.
As soon as the business shows signs of expansion, an Annual Contract Works Insurance Policy is the way to go for the advantages it provides.
Whether you are a builder that specialises in Domestic builds or Commercial builds, we can help you find the right insurance policy at very competitive rates.
Annual Contract Works Insurance Cost
The cost of an Annual Contract Works Insurance policy is calculated by the insurers on a number of factors like:
- What does a typical project look like for the builder, is it suburban homes, budget range or catering to the prestige market? Perhaps you are building factory warehouses, commercial buildings that house fast food joints like McDonalds.
- How many projects do you build in a year?
- Where do you build from a location perspective? Is there any exposure to the cyclone or bushfire affected areas?
Annual Contract Works Insurance Calculator
Here we give an example of how you premium is calculated for policy adjustment at the end or just before the end of the policy term.
Let’s just take an example of a builder who’s in the second year of their operations, after taking out a couple of single project policies, they have decided to take the annually renewable policy.
Based on the builder’s submission on the type, location, value and duration of the builder’s projects the insurer will apply a rate to the estimated value of all the projects that are likely to start in the policy period. Example:
- Estimated value of projects – $1.5 million
- Premium applied including GST, StampDuty etc. – $7800
- Cover includes both material damage and public liability
Annual Contract Works Insurance Policies require a builder to complete a declaration towards the end of the policy period about the actual value of the projects commenced in the policy period.
Say at the end of the policy period, the actual turnover exceeded the estimated turnover provided at the start of the year, the insurer will require the builder to pay the adjustment premium or a refund in case the turnover was lower.
Say the turnover exceeded by $300,000. In that case the insurer may charge an extra premium of about $1500.
Our team is an expert at setting up annual contract works insurance policies with long established relationships with many insurers. Give us a call to discuss your insurance needs.
Some of the insurers that provide Annual Contract Works Insurance: