Construction all-risk insurance: Invest wisely and manage construction risks cleverly
08.04.25
11
Minutes
Katrin Straub
Managing Director at nextsure
Building a house involves many uncertainties; statistically, one in every two construction projects results in a claim. Construction all-risk insurance protects you against the often potentially existence-threatening financial consequences. Find out when this insurance is indispensable and how to ensure the optimum cover for your project.
The topic in brief and concise terms
Contract works insurance protects building owners and the companies involved against the financial consequences of unforeseen damage to the structure during the construction period, such as storm, vandalism or negligence.
The cost of the insurance depends on the sum insured, construction type and construction period, and is low in relation to the potential damage; it is often a prerequisite for construction financing.
Important exclusions are usually fire damage and structural defects; a careful review of the policy terms and supplementing it with, for example, builders’ liability insurance and fire insurance for buildings under construction are essential.
Contract works insurance: the facts – protection against unpredictable construction risks
Construction all-risks insurance covers unforeseeable damage to the structural shell and new build throughout the entire construction period. It protects clients and all companies involved against the financial consequences of, for example, extreme weather events or vandalism. The sum insured is based on the total construction costs of the building, excluding land and development costs. Many banks even require such a policy to be taken out before granting a construction loan.
Statistically speaking, a claim occurs in fifty percent of all construction projects. Construction all-risks insurance typically covers damage caused by force majeure, negligence, theft of permanently installed parts, and design or material defects. It is an indispensable safeguard for minimising the financial risk of a construction project, which often amounts to several hundred thousand euros. Cover generally begins with the setup of the construction site and ends when the building is ready for occupancy or upon acceptance. A builders' liability insurance perfectly complements this protection.
Practical check: When does construction insurance pay out and what costs are incurred?
Construction all-risk insurance covers a wide range of unforeseen events that can occur during the construction phase. A typical example is a severe storm that damages the newly finished roof and allows rain to get in, causing further damage to the interior fit-out; in this case, the insurance covers the repair costs. It also provides cover in cases of vandalism, for example if unknown individuals smash window panes or damage already installed sanitary fittings. Another scenario is unforeseen characteristics of the ground, which lead to subsidence and damage to the structural shell – here too, the costs of determining and rectifying the damage are covered.
The cost of construction all-risk insurance varies and depends on several factors. The key factors are the construction sum, the type of project, the planned construction period and the level of cover required. For a project with a construction sum of EUR 250,000, good construction all-risk insurance can already be taken out for a one-off premium of under EUR 300. With a construction sum of EUR 350,000, the premium increases by around EUR 65 to 100. Many tariffs include an excess, which can be between EUR 150 and EUR 2,500. It is common to apportion the costs pro rata among the construction companies involved, as they also benefit from the insurance cover. A fire insurance for the shell structure is often not included and should be considered separately.
Scope of cover in detail: These damages are typically covered
The core benefit of construction all-risk insurance is cover for unforeseen damage or destruction during the construction period. The policy generally covers a broad range of risks. These include:
Damage caused by exceptional weather conditions such as storms, hail or heavy rain (but not normal weather conditions such as frost).
Vandalism and malicious damage by third parties.
Theft of components already permanently attached to the building (e.g. radiators, windows).
Negligence or carelessness by the construction workers that results in damage.
Unknown properties of the ground on which the building is being constructed that cause damage.
Consequential damage resulting from design or material defects (not the defects themselves).
Breakage of fixed panes of glass.
Damage caused by collapsing scaffolding or falling components.
It is important that the insurance covers the costs of restoring the property to the condition immediately before the damage occurred. This includes material and labour costs. Clear-up costs and costs of assessing the damage are often included as well. A useful addition can be the buildings insurance, which takes effect once the property is completed.
Limits of cover: What construction works insurance does not cover
Despite comprehensive cover, there are certain risks and losses that construction all-risk insurance does not usually cover. It is important to know these exclusions to avoid gaps in cover. Typical exclusions include:
Damage caused by fire, lightning or explosion; a separate shell construction fire insurance is required for this, which is often offered as a free component of a later buildings insurance policy.
Damage caused by normal weather influences that can be expected seasonally and locally (e.g. frost without exceptional cold).
Defects in construction, i.e. errors in the construction work itself; in such cases, the contractor is usually liable.
Theft of loosely stored building materials or tools; usually only the theft of permanently installed parts is insured.
Costs arising from delays to the construction period, unless a specific construction all-risk business interruption insurance policy has been taken out.
Insolvency of the building contractor or other contractual partners.
Damage caused intentionally by the policyholder or their representatives.
War or civil unrest.
Check the policy terms carefully for exclusions and extensions of cover. For comprehensive protection, additional modules or supplementary insurance such as natural hazards insurance for the completed building are often worthwhile.
Expert knowledge: Legal aspects and the role of the VOB
The German Construction Contract Procedures and Contract Terms for Building Services (VOB), especially Part B, play a role in risk allocation in construction. Under Section 7 VOB/B, the contractor generally bears the risk for its services until acceptance. However, if damage occurs due to force majeure, war, civil unrest or other objectively unavoidable circumstances not attributable to the contractor, the contractor is entitled to payment for the services already performed. Construction all-risks insurance can provide clarity here by covering the damage regardless of the precise question of fault, thus avoiding lengthy disputes between the client and the contractor.
The terms and conditions for construction all-risks insurance are often based on the General Conditions for Construction Insurance for New Buildings by Clients (ABN) or the General Conditions for Construction Insurance for Contractors' Services (ABU). These regulate details such as the scope of cover, insured perils and exclusions. It is crucial to understand the specific clauses of your own contract, as deviations are possible. For example, cover for existing building fabric in conversion or refurbishment projects is often an important additional component. The exact definition of when cover ends (e.g. upon practical completion or six working days after the start of use) is also contractually defined. Comprehensive advice on insurance relating to homes and living is therefore recommended.
Optimal protection: tips for choosing the right construction all-risk insurance
Choosing the right construction all-risk insurance requires a careful review of the various offers and policy details. An important point is the correct determination of the insured sum; this should include all construction costs of the building, including building materials, components and own labour. A sum set too low can lead to underinsurance in the event of a claim and therefore to reductions in benefits. It is advisable to calculate the construction sum rather generously; additional premiums are often small, and premiums paid in excess are refunded after the final settlement.
Pay attention to the exact scope of cover and any possible exclusions. You should take the following points into account when making your selection:
Check whether damage caused by gross negligence is also covered.
Clarify the amount of the excess; a typical range is between EUR 150 and EUR 2,500 per insured event.
Make sure that damage caused by unknown characteristics of the building plot is also covered.
Consider additional modules such as cover for theft of permanently installed parts or co-insurance for damage to older buildings during renovation work.
Find out about the rules on the policy term and possible extensions in the event of construction delays.
Compare not only the price, but especially the benefits of at least three different providers.
Make sure that search costs and clearance costs are also covered up to an appropriate amount (e.g. EUR 20,000).
Our expert tip: document construction progress regularly with photos so that you can provide evidence in the event of a claim. A comprehensive overview of the insurance policies required for construction helps you keep track.
Construction works insurance is a key building block, but for comprehensive protection, additional insurance is often necessary. One of the most important is building owner’s liability insurance. It covers personal injury and property damage suffered by third parties on your construction site, for example if a passer-by is injured due to inadequate site security. The sum insured should be at least three, ideally five million euros.
A shell fire insurance policy is essential, as fire damage (fire, lightning strike, explosion) is generally not covered by construction works insurance. This is often included free of charge in a later buildings insurance policy, which protects the building once completed. For builders who carry out work themselves or employ private helpers, construction helpers’ accident insurance is important, as these helpers must be covered through the employers’ liability insurance association. Check whether the risk for the undeveloped plot up to the start of construction is included in your personal liability insurance or the building owner’s liability insurance taken out at an early stage. This closes potential liability gaps from the outset. For landlords, specialist landlord insurance policies are also relevant.
Conclusion: contract works insurance – a worthwhile investment in protecting your construction project
The question “Is construction all-risk insurance worthwhile or not?” can be answered with a clear yes for most construction projects. Given the high financial risks and the statistical incidence of claims of around fifty per cent, it offers essential protection. The cost of construction all-risk insurance is low compared with the potential amount of damage, which can quickly reach several tens of thousands of euros. It protects not only the client but also all companies involved, and can help to avoid costly legal disputes.
A careful selection of the tariff and consideration of individual project risks are crucial for optimal protection. Also think of supplementary insurance such as builders’ liability insurance and fire shell insurance. With the right cover, you can face your construction project much more calmly. Buildings insurance is then the next logical step once completion is reached.
Request your individual risk analysis now: Have your insurance situation checked free of charge and receive concrete suggestions for optimisation.
More useful links
Wikipedia provides a comprehensive overview of construction performance insurance.
Statistisches Bundesamt (Destatis) provides current statistics on the construction industry in Germany.
Bauherren-Schutzbund e.V. provides a detailed report on building defects from 2022.
Hauptverband der Deutschen Bauindustrie provides figures and facts on the German construction industry.
Bundesinstitut für Bau-, Stadt- und Raumforschung (BBSR) publishes analyses on housing and construction topics.
FAQ
Why is construction all-risk insurance worthwhile for private builders?
It protects against high financial burdens caused by unforeseen damage during construction, which can quickly exceed your own financial resources. Since statistically every second construction project is affected, it minimises a significant risk.
What role does the VOB play in construction all-risk insurance?
The VOB/B regulates, among other things, the allocation of risk. Construction all-risk insurance can pay regardless of the question of fault and thus help to avoid disputes between the client and the contractor under the VOB.
What is the difference between contract works insurance and builders' liability insurance?
Construction all-risks insurance covers property damage to the insured building itself. By contrast, builders' liability insurance covers personal injury and property damage suffered by third parties as a result of the construction site (e.g. an injured passer-by).
How long does construction all-risk insurance last?
As a rule, it begins with setting up the construction site and ends when the building is ready for occupancy or has been accepted, often after two years at the latest. If there are delays, an extension must be applied for.
Are self-performed works also covered under construction insurance?
Yes, the value of planned work carried out by the policyholder should be included in the sum insured. Some insurers may charge an additional premium for this, as the risk may be assessed as higher for amateur work.
What happens if construction costs rise during construction?
If construction costs increase, this must be reported to the insurer immediately so that the sum insured can be adjusted. Otherwise, in the event of a claim there is a risk of underinsurance and therefore a reduction in benefits.
