What Is Contractors All Risk Insurance?

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Contractors all risk insurance, often shortened to CAR insurance, is one of those policies that many people in construction know they are supposed to have, but are not always entirely clear on what it actually covers or why it matters so much. From my experience advising construction businesses and reviewing insurance schedules alongside contracts, this is an area where misunderstandings can be expensive.

In simple terms, contractors all risk insurance is designed to protect construction projects while they are being built. It covers damage to the works themselves, materials, and often plant and equipment, as well as third party property damage arising from the construction activities. It is fundamentally about protecting the value of the project while it is in progress, rather than after it is completed.

In this article I want to explain what contractors all risk insurance is, what it typically covers, what it does not cover, who needs it, how it works in practice in the UK, and why it is so often required under construction contracts. I will also explain how CAR insurance fits alongside other types of cover, because it is rarely sufficient on its own.

Why contractors all risk insurance exists

Construction projects are exposed to a unique set of risks. A building under construction is vulnerable in ways that a completed building is not. Materials can be stolen, partially completed structures can be damaged by fire or flooding, and work can be ruined by storms, vandalism, or accidental damage caused by people working on site.

Standard property insurance does not usually cover buildings while they are being constructed or significantly altered. Likewise, public liability insurance focuses on injury or damage to third parties, not damage to the project itself.

Contractors all risk insurance exists to fill that gap. It is designed specifically for the construction phase, covering the physical works until practical completion and handover.

What contractors all risk insurance typically covers

While policies vary between insurers, contractors all risk insurance in the UK usually provides cover in three main areas.

The first is contract works. This covers the permanent and temporary works being carried out, including materials on site and sometimes materials stored off site or in transit. If a partially built structure is damaged by fire, flood, storm, or accidental impact, CAR insurance can cover the cost of reinstatement.

The second area is plant, tools, and equipment. Many policies include cover for construction plant and tools used on site, either owned by the contractor or hired in. This can include excavators, scaffolding, generators, and smaller tools, subject to policy limits and conditions.

The third area is third party property damage arising from the works. This is often confused with public liability, but under CAR insurance it usually relates to damage to surrounding property caused directly by the construction activities, such as collapse or structural damage linked to the works.

It is important to read the policy wording carefully, because not all CAR policies include all three areas as standard.

What contractors all risk insurance does not cover

One of the most important conversations I have with clients is about exclusions. CAR insurance is broad, but it is not unlimited.

It does not usually cover defective workmanship or poor design as a standalone issue. If work is faulty, the cost of putting that fault right is typically excluded. However, resulting damage caused by the defect may be covered. This distinction is subtle but crucial.

Wear and tear, gradual deterioration, and normal maintenance issues are also excluded. CAR insurance is for sudden and unforeseen events, not predictable outcomes.

Most policies also exclude contractual penalties, liquidated damages, and delay costs unless specific extensions are added. If a project is delayed because of damage, the cost of delay is not automatically covered.

Understanding these exclusions helps avoid unpleasant surprises when a claim arises.

Who needs contractors all risk insurance

Contractors all risk insurance is commonly required by main contractors, but it can also be relevant for subcontractors, developers, and property owners, depending on how the project is structured.

On many projects, the main contractor arranges a single CAR policy covering the whole site. Subcontractors are then named or noted as insured parties under that policy.

In other cases, particularly on smaller projects or where labour only subcontractors are used, individual contractors may be required to hold their own CAR insurance.

Developers and property owners may also take out CAR insurance themselves, particularly where they are managing the project directly or engaging multiple contractors.

The key point is that someone must insure the works, and contracts usually specify who that responsibility sits with.

Contractors all risk insurance and construction contracts

CAR insurance is closely linked to construction contracts. Standard form contracts often specify the type and level of insurance required, including CAR cover.

The contract will usually state who is responsible for arranging the insurance, what risks must be covered, the policy limits, and who must be named on the policy. Failure to comply can be a breach of contract, even if no claim ever arises.

From experience, insurance clauses are often overlooked when contracts are signed, particularly on smaller projects. This can lead to disputes later if damage occurs and parties discover that insurance was inadequate or incorrectly arranged.

How contractors all risk insurance works in practice

In practice, a CAR policy is taken out for a specific project or for a defined period covering multiple projects. The sum insured is usually based on the contract value or the estimated completed value of the works.

If damage occurs during the policy period, the insured party notifies the insurer and submits a claim. The insurer assesses whether the damage is covered and, if so, pays for repair or reinstatement, subject to excesses and policy limits.

This process can take time, particularly on complex projects, which is why clear records, photographs, and documentation are so important.

Single project policies versus annual policies

There are two main ways CAR insurance is arranged in the UK.

Single project policies are taken out for one specific project and last for the duration of that project. These are common on larger or higher risk jobs where the contract value is significant.

Annual policies cover multiple projects over a year, up to a specified contract value per project. These are common for contractors carrying out regular work on smaller sites.

Each approach has advantages. Single project policies can be tailored closely to the project, while annual policies offer flexibility and administrative simplicity.

Contractors all risk insurance and existing structures

One area that often causes confusion is cover for existing structures.

If you are carrying out works to an existing building, CAR insurance may or may not cover damage to the existing structure. This often depends on whether an extension for existing structures has been included.

Without this extension, damage to the existing building may not be covered, even if it arises from the works. This is a critical point for refurbishment and extension projects, and one that should never be assumed.

Interaction with public liability insurance

Contractors all risk insurance does not replace public liability insurance. The two policies serve different purposes.

Public liability insurance covers injury to third parties and damage to third party property, such as a member of the public or a neighbouring property not forming part of the works.

CAR insurance focuses on the works themselves and related property. On many claims, both policies may be relevant, but they respond to different aspects of the loss.

From experience, gaps often arise where businesses assume one policy will cover everything. In reality, both are usually required.

Interaction with professional indemnity insurance

Another area of overlap is professional indemnity insurance.

Professional indemnity covers losses arising from professional advice, design errors, or specification issues. CAR insurance does not usually cover pure design defects.

On design and build projects, it is common for contractors to require both CAR and professional indemnity insurance, because each addresses different risks.

How much contractors all risk insurance costs

The cost of CAR insurance varies widely depending on the nature of the project, contract value, location, duration, and risk profile.

Factors that influence cost include the type of work being carried out, whether it is new build or refurbishment, the presence of high risk activities, security arrangements on site, and claims history.

Because of this variability, there is no single typical price. However, from experience, the cost is usually modest compared to the potential cost of uninsured damage.

Common mistakes I see with CAR insurance

There are several recurring issues I encounter when reviewing contractors all risk cover.

One is underinsuring the contract value. If the sum insured is too low, claims may be reduced proportionally, leaving the contractor exposed.

Another is failing to include all relevant parties on the policy, which can cause disputes over who is entitled to claim.

There is also a tendency to assume that hired in plant or off site materials are covered when they are not.

These issues often only come to light when a claim is made, which is the worst possible time to discover them.

Contractors all risk insurance for subcontractors

Subcontractors often assume that the main contractor’s CAR policy will cover them. Sometimes it does, sometimes it does not.

It depends on the contract and the policy wording. Subcontractors should always confirm whether they are covered under the main policy and what that cover includes.

If in doubt, having your own CAR insurance or specific extensions can provide additional protection.

Why contractors all risk insurance matters so much

Construction projects involve significant financial risk, even on relatively small jobs. A single fire, flood, or collapse can wipe out months of work and threaten the survival of a business.

CAR insurance provides a safety net, allowing projects to be repaired and completed rather than abandoned. It also provides reassurance to clients, funders, and other stakeholders that risks are being managed responsibly.

From a commercial perspective, having appropriate CAR insurance can also make a business more attractive when tendering for work.

Contractors all risk insurance and lenders

On larger projects, lenders often require evidence of contractors all risk insurance as a condition of funding. They want assurance that the asset they are financing is protected during construction.

This can influence policy limits, insurer ratings, and wording, adding another layer of importance to getting the cover right.

Reviewing and updating cover

CAR insurance should not be treated as a set and forget policy. Changes to the project, increases in contract value, or extensions to the programme may require updates to the cover.

Failing to notify insurers of material changes can invalidate cover or limit claims.

The importance of advice

Given the complexity and variation in policies, professional advice is often valuable when arranging contractors all risk insurance. Brokers who understand construction risks can help tailor cover and identify gaps.

From experience, the cost of advice is often far outweighed by the benefit of having a policy that actually responds when needed.

Final thoughts

Contractors all risk insurance is a cornerstone of risk management in construction. It protects the value of work in progress, supports project continuity, and underpins contractual and financial arrangements.

While it is sometimes seen as just another compliance requirement, in reality it plays a critical role in protecting businesses from events that could otherwise be catastrophic.

Understanding what CAR insurance covers, what it does not cover, and how it fits with other policies allows construction businesses to make informed decisions and avoid costly assumptions. In an industry where uncertainty is part of the landscape, having the right protection in place is not optional, it is essential.

You may also find our guidance on what is business insurance and is public liability insurance mandatory helpful when dealing with related CIS questions. For a broader overview of CIS rules, compliance, and support, you can visit our cis guidance hub.