Definition:Construction all risks (CAR)
🏗️ Construction all risks (CAR) is a form of property insurance designed to cover physical loss or damage to civil engineering and building works during the course of construction, including materials, equipment, and — through extensions — third-party liability arising from the construction activity. Written on an all-risks basis, a CAR policy responds to any fortuitous loss that is not specifically excluded, rather than limiting coverage to named perils. This broad form makes it the standard insurance vehicle for construction projects worldwide, from residential developments to mega-infrastructure undertakings such as bridges, tunnels, and power plants.
🔧 A typical CAR policy is structured around several sections. Section I covers the contract works themselves — the permanent and temporary structures being built — along with construction plant, machinery, and materials stored on-site or in transit. Section II provides third-party liability coverage for bodily injury and property damage arising out of construction operations. Extensions commonly added include coverage for the principal's existing property adjacent to the works, removal of debris, professional fees for redesign after a loss, and delay in start-up (DSU) coverage that indemnifies the project owner for lost revenue when construction delays push back the operational commencement date. Underwriters assess CAR risks by examining the project value, construction methodology, soil and seismic conditions, contractor experience, quality-assurance protocols, and the contract's allocation of risk among employer, contractor, and subcontractors. In Lloyd's and international placement markets, CAR policies for large projects are frequently co-insured across multiple syndicates or carriers, with a lead underwriter setting terms that following markets adopt.
📊 CAR insurance sits at the heart of project finance and development worldwide. Lenders and project sponsors routinely require evidence of CAR coverage before releasing construction funding, and contractual frameworks such as FIDIC conditions of contract explicitly reference the obligation to maintain all-risks cover during the construction phase. From an insurer's perspective, CAR portfolios carry both attritional risk — water ingress, faulty workmanship, theft of materials — and catastrophe exposure, since large projects in earthquake zones, cyclone-prone coastlines, or flood-susceptible river basins can generate losses running into hundreds of millions. Reinsurers and facultative markets play a vital role in absorbing peak exposures on mega-projects, and the engineering risk survey conducted before placement is among the most technically demanding assessments in the specialty insurance market. As construction methods evolve — modular building, 3D printing, and the use of advanced composite materials — CAR underwriters must continuously update their understanding of the hazards these innovations introduce.
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