Small construction companies risk bankruptcy without proper insurance

The spate of construction projects over the last few years, driven by the property boom and new infrastructure ahead of the 2010 FIFA World Cup, has seen a proliferation of new construction companies in South Africa.

However, according to Jonjon Smit, Sales Director at CIB Insurance Solutions (CIB), a number of these small construction companies have already been forced to close their doors as a result of substantial losses incurred, which could have been prevented.

He estimates that only 50 - 60% of building contractors have any form of insurance in place. “Larger construction groups who have been around for years often have adequate cover in place However, many smaller players who are trying to save costs choose to cut back or neglect insurance, often with disastrous consequences.”

According to Smit, there are several types of cover available to companies operating in the engineering and construction industry.

These include contract works, which a building contractor needs each time they build a house or does a contract where he would be liable for damages, plant all risks cover to insure the plant vehicles (yellow metal), contract works liability to insure against any liability following a third party claim if negligence occurs on the contract site and erection all risks to cover the erection and dismantling of items such as cranes.

Smit says while damage used to be the biggest cause of insurance claims on engineering insurance policies, theft is becoming an increasingly common reason for claims. “We have even had a case of a bulldozer being stolen, which is incredible when you think of the size and visibility of these vehicles.”

He says that as a result of the rise in burglaries from construction sites, most insurance companies insist on a security guard being present at the site afterhours in the case of a claim for theft, unless the actual workers are staying on the site.

Most engineering insurance policies are either taken out on an individual or annual contract basis. “An individual contract is a once-off policy that provides insurance to the maximum value of the contract itself. Annual contract insurance provides cover for projects undertaken throughout the year, with the premium dependent on the maximum contract value as well as the number of expected projects in a 12 month period.”

He says it is important for building and engineering companies to ascertain from a qualified broker, who understands these industries, exactly what their insurance policy covers.