Building & Construction Insurance Risks

Building & Construction Insurance Risks

What are the key risks in the building and construction industry?

Construction projects involve multiple stakeholders and are often undertaken on challenging sites. Construction businesses must often manage changes to scope or orders, poorly written contracts and specifications and complex project management issues. They may need to deal with labour and materials shortages, or theft of tools and materials.

Subcontractors and suppliers can provide extra stress for construction firms, as can the rising number of extreme weather events. What’s more, cybercrime is an emerging threat to construction businesses, which often use insecure
connections from mobile workplaces, and share files and data with stakeholders outside the business.

Who should consider insurance?

Whether you’re an owner builder, a contractor or a large construction company, you’ll need a range of insurance covers to safeguard your workers, building and equipment.

“The construction industry generates over $350 billion in revenue, producing around 8% of Australia’s Gross Domestic Product, and has a projected annual growth rate of 2.5% in the next five years.” Australian Industry and Skills Committee, Construction, 2020


Did you know?

  • 12,600 – The average number of serious claims per year over the last 5 years. (Safe Work Australia, Construction Industry Profile, 2015)
  • The construction industry had the fourth highest rate of serious claims in 2012-13. (Safe Work Australia, Construction Industry Profile, 2015)

What insurance should you take out – and what can it cover?
Insurance can protect you and your employees onsite, on the way to work and in your office.

Contract works

Protects any buildings under construction and construction equipment. This cover may include protection against:
• natural disasters like fire, earthquake, storm, flood, wind and water damage
• damage to property caused by defects, theft and malicious damage or vandalism or smashed glass
• third-party personal injury and property damage.

Business pack

Safeguards your business premises against:
• equipment or machinery breakdown
• employee dishonesty
• property or glass damage
• legal issues, with public and products liability
• tax audit
• theft, and theft or loss of money.

Cyber

Safeguards you and your business against expenses and legal costs if your website or other systems are hacked and your system cannot be used or customers’ details are stolen.

Motor Insurance

Takes care of your valuable business vehicles with cover to:
• help if you or your staff damage another person’s vehicle
• repair your vehicle after an accident or replace it if it’s written off
• replace a lost or stolen vehicle
• safeguard you against legal liability

Professional Indemnity

Protects you against legal action from a client for breach of professional duty. This
type of insurance is often required by building contracts.


What usually isn’t covered?
Exclusions, the excess you need to pay and limits of liability can vary greatly depending on your insurer and the requirements of your business.

Retailer – Cyber Insurance Claim 2

Retailer

16 staff

$5M turnover

Payment: $7,500

Background

The Insured received an invoice, purportedly from a known supplier, requesting payment for an outstanding debt. The Insured transferred $27,000 in accordance with the email instructions. The next week the Insured discovered that the email was fraudulent and payment had been made to a hacker.

Outcome

As the Insured did not have the optional Social Engineering cover under their policy, they were unable to claim for the direct financial loss suffered as a result of making the fraudulent payment. The Insured was able to claim for remediation costs in relation to the attack, given there was a threatened Network Security Event.

Payment: $7,500

Accountant – Cyber Insurance Claim 2

Accountant

5 staff

$2M turnover

Payment: $90,000

Background

The Insured’s director noticed that some documents on their server had been deleted. Further investigations were undertaken and it was discovered a hacker had been accessing the Insured’s system for the past 2 months.

Outcome

The Insured notified the insurer who hired an IT Forensic Consultant to review the Insured’s systems. It was discovered 800 client files had been accessed which included private details such as driver’s licenses and passport numbers. A specialist firm was appointed to monitor whether any client identities were stolen or sold as well as a law firm to advise on the data breach issues and draft a notification letter to all affected parties. It was determined that the Insured had to report the incident to the Privacy Commissioner and the appropriate steps were taken to secure the information they held. Remediation costs were also covered to rectify any issues with the Insured’s system.

Payment: $90,000

Media – Cyber Insurance Claim 2

Media

12 staff

$3M turnover

Payment: $41,000

Background

A hacker impersonated a client of the Insured, using an identical email address. The hacker emailed the Insured advising that future payments should be made to a new bank account. When the Insured was due to pay the client, they paid $41,000 into the fraudulent account.

Outcome

The Insured claimed against their Cyber policy which triggered the optional Social Engineering cover. Indemnity was granted for the direct financial loss suffered by the Insured.

Payment: $41,000

Hotel Chain – Cyber Insurance Claim

Hotel Chain

10 staff

$1M turnover

Payment: $30,000

Background

The Insured hired a contractor to perform works on one of their properties. The Insured received an invoice for $13,000 from the contractor. The following week the Insured received an email claiming to be the contractor, stating that their bank details had changed and provided the new details. The Insured subsequently paid the $13,000 into the ‘new’ bank account. A few days later the contractor followed up the Insured for payment for their works at which time it was identified that their emails had been compromised and the Insured had paid a fraudulent account.

Outcome

The Insured made a claim on their Cyber Policy and after conducting investigations, indemnity was granted under the optional Social Engineering Fraud cover. The Insured was reimbursed for the direct financial loss suffered as a result of the fraud.

Payment: $30,000

Retailer – Cyber Insurance Claim

Retailer

16 staff

$5M turnover

Payment: $7,500

Background

The Insured received an invoice, purportedly from a known supplier, requesting payment for an outstanding debt. The Insured transferred $27,000 in accordance with the email instructions. The next week the Insured discovered that the email was fraudulent and payment had been made to a hacker.

Outcome

As the Insured did not have the optional Social Engineering cover under their policy, they were unable to claim for the direct financial loss suffered as a result of making the fraudulent payment. The Insured was able to claim for remediation costs in relation to the attack, given there was a threatened Network Security Event.

Payment: $7,500