Could a building material or labour shortage affect your insurance cover?

The current climate of the residential construction industry is very challenging, with the rising costs of materials and labour shortages. The sudden increase in demand for materials has coincided with supply constraints in various building materials, leading to significantly higher prices, as well as delays in many construction projects. Such delays can have an impact on insurance cover under Construction Works Insurance. Let’s take a look at how

Unprecedented demand and constrained supply

The building material shortage has come about due to several factors linked to rising costs of materials and labour shortages. The Federal government’s HomeBuilder scheme has further contributed to supply and labour constraints. The combination of a sudden rise in demand, and reduced supply have presented a substantial challenge for many builders, impacting their ability to complete their projects within the specified time frame.

What does this building materials and labour shortage mean for Construction Works Insurance?

When delays are experienced in construction projects due to supply constraints or other factors, it could impact the timeline at which the project was originally required to be completed. As a result, this can affect your Contract Works policy as it has a period of construction coverage timeframe, which can vary depending on the details of your policy at inception.

This period of construction coverage timeframe may be different to the policy period. As such, we suggest you refer to your policy to determine your specific policy coverage period and whether all your construction projects are within this designated timeframe. If any of your jobs are outside the construction coverage timeframe specified in your policy, the insurer must be notified. You can then liaise with the insurer to extend the period of cover. If the insurer is not notified, coverage may be compromised and seeking to claim against a policy outside of this period of construction coverage timeframe may result in the claim being declined by your insurer.

Further, when delays are experienced in construction projects due to supply constraints or other factors, it’s not uncommon for builders to not attend sites for prolonged periods. However, this also may impact coverage under your Construction Works policy. How can this affect coverage? Construction Works Insurance policies typically contain a “cessation of works” clause, which excludes cover when the site has not been attended to for an extended period of time. Standard cessation of works period for Construction Works Insurance typically range from 30-60 days, meaning if the site has been unattended for longer than that period of time, the cover is likely to be impacted. After this time, if a builder is still unable to attend, the insurer must be notified, and the insurer may choose to extend the cover. If the insurer is not notified, coverage may be compromised.

In addition, the building materials shortage has led to some builders “reverse building” to complete projects on time. For example, some builders have been completing plasterwork and internal fixings prior to external cladding being completed. Under Construction Works Insurance, you may be required to take reasonable care in the methods you use. In this case, for example, if storm damage occurs to internal works due to the lack of cladding, this may be seen as you not having taken reasonable care in your work and may be used as a basis for an insurer to not provide coverage. Therefore, before using any alternative construction methods, it’s a good idea to get in touch with your broker to discuss your coverage.

If you haven’t heard from your broker…

If your projects have been affected by a materials and labour shortage it is a good idea for you to get in touch with your broker to help clarify whether your cover has been impacted. HIA Insurance Services recommends builders contact their insurance broker and check the construction coverage timeframe and policy period. If you need to request an extension, your broker can assist you with the process.

How can HIA Insurance Services help?

As specialists in insurance for the construction sector, our brokers are dedicated to helping builders and tradies feel confident their livelihood is protected. As brokers, we have spent many years learning the ins and outs of insurance for the construction sector. So, if you currently do not have your Contract Works Insurance arranged through HIA Insurance Services, talk to an expert today and find out how we can help.