Theft and vandalism: More than £1million a day*¹. Fire: £400million*². Water damage: Upwards of £483million*³. It’s the eye-wateringly expensive restitution bill no contractor or developer wants on their books.
For an industry with profit margins as tight as those experienced by construction firms, damage-related expenses are worrying news.
Costs are escalating due to ongoing volatility in the CAR insurance market, making insurance harder (and more expensive) to place. As a consequence, claims are more likely to be disputed and, potentially, rejected. Tougher risk management measures could also be stipulated by insurers.
The good news? As damage is often related to poor (or non-existent) site security and monitoring, by upgrading these systems at little (if any) additional cost, shrewd and informed companies can out-perform their less well-equipped competitors in terms of spec and service offering.
These higher level surveillance tech and monitoring solutions are exceeding insurers’ risk management requirements. They are reducing the risk and cost of large scale damage that might be outside the scope of construction insurance policies, and they’re lowering total cost of risk (TCOR).
This blog explores the financial and insurance-related consequences of site damage and how making uninformed site security choices opens companies up to greatly increased loss frequency and severity.
Read Blog Two, Construction Site Security: How to Select the Best Monitoring Systems (coming soon) to discover the options available to companies seeking effective surveillance tech and monitoring partners.
The site risks that are costing contractors and developers millions
Projects are most exposed to risk when equipment is left exposed, and when sites are unattended, especially at night, and during weekends and holidays. Security is a challenge irrespective of a project’s location: city centre works are as vulnerable as remote building sites.
In addition to the damage caused, companies face the cost of replacing uninsured property. They also incur expenses related to business interruption and delayed completion. These delays are a construction risk of their own, as they could eat into build times, resulting in penalties for breaching construction time limits.
Risks to unattended construction sites include:
Theft. The constantly evolving nature of sites (with numerous personnel coming and going) puts many project components at risk of theft. Vulnerable elements include plant equipment and materials (especially metals), particularly machinery, tools, metal and fuel.
The total number of recorded thefts in 2018 was 3,145, a 36% increase of the 2,311 thefts the previous year. The figures are reported by the police’s specialist Plant and Agricultural National Intelligence Unit (PANIU), which records thefts of any equipment larger than the size of a panel van.
Fire. Hundreds of construction and renovation project fires are reported each year in the UK. Some 40% are caused deliberately*4. Notable recent fires include the Glasgow School of Art blaze, which will cost £100million to remedy.
Criminal damage caused by vandals. A massive 91% of the 1,100 construction professionals canvassed in the CIOB’s Crime in the Construction Industry survey had experienced vandalism.
Injury to children / young people. Each year, about three children and young people lose their lives after gaining access to building sites, wanting to explore*5. Many more are injured. While the numbers of children being killed or injured on construction sites has lessened in recent years, there is no room for complacency.
Water damage. The destruction caused by escaping water tops the ‘peril’ group for developers. Damage caused by escaping water is one of the largest causes of developers’ insurance claims. Read how much of the cost, including the cost of delay, could sit with the developer.
Terrorism and civil unrest. Sites are vulnerable to politically-motivated attacks that are intended to delay or prevent construction. Terrorist activity also includes pre-positioning devices or material to allow or perform destructive acts after project completion.
How site security breaches impact your construction insurance
Site damage creates a domino effect of circumstances and related expenses that create significant costs for contractors and developers:
- Restitution: A great deal of time, effort and cost is involved with rectifying damage, managing claims for new equipment, and procuring difficult-to-source machinery and materials.
- Trespasser injuries and fatalities: Site owners and occupiers owe a duty of care even to unlawful trespassers who may break in to steal equipment and materials or cause malicious damage. This is encompassed in the Occupiers' Liability Act 1984. Life changing injuries such as paraplegia can often lead to multi-million pound damages awards; dependency claims for fatalities are often into six figures and beyond. Read how changes to the Ogden Discount Rate for personal injury claims have pushed up the cost of payouts to successful claimants.
- Premiums: A company’s risk profile is increased following security breaches and site damage, so increased insurance premiums are likely at renewal time.
Other contractors’ and developers’ insurance considerations
Insurance exclusions: Standard contract terms often exclude or limit security-related risks and losses (i.e. fire). These exclusions result in significant costs that erode the narrow profit margins experienced by construction companies.
Sub-contractor coverage breaches: Construction that integrates hot works, such as welding, flame-cutting and grinding, is often conducted by sub-contractors. If such works result in a fire, and a sub has been found to have breached the conditions of their insurance, the insurer won’t pay out, leaving the main contractor liable for the costs. Read Blog Two of this series, Construction Site Security: How to Select the Best Monitoring Systems (coming soon), to discover how to choose the most effective non-human intervention.
New trend: Insurers are toughening up
As a condition of their CAR insurance, employers have to ensure their working practices and procedures are compliant with the Fire Prevention on Construction Sites Joint Code of Practice (JoCop).
Currently, construction insurance underwriters stipulate that surveillance equipment needs to be standards-compliant. Going forward, there is a very real danger that if a company’s monitoring partners are not also standards-compliant, their cover will be affected, and claims rejected.
What types of construction risk management tools are available?
By deploying remote solutions and traditional onsite security measures, contractors can manage on-site risks. They will reduce their risk profile, thus placating insurers. Additionally, remote security can reduce the risk of injury to the public or even intruders, which could result in claims or criminal prosecutions.
Site security is ever-changing. As a project increases in size and complexity, the nature of the risks will evolve and its security needs could change. Before choosing which solutions to invest in, and at what point, talk to your construction insurance broker about engaging in a construction risk assessment.
Traditional construction site security features include: warning signs, lighting, and perimeter security such as barriers, gates and fencing. In recent years, advances in building site security technology have ushered in a new generation of affordable, remote solutions that complement more traditional security methods.
Contractors and developers can choose from a variety of lighting and monitoring solutions. Free-standing units and mobile tech solutions are available that function without the need for phone lines, power cables or electrical wiring.
Why do so many contractors settle for ineffective surveillance systems?
Often, risk and insurance managers aren’t aware of the implications of what they are buying. There’s a lack of knowledge of the available options, resulting in poor choices being made, and companies don’t realise they can get better value for their money.
Unlike surveillance technology, a contractor’s choice of monitoring partner (or the partner’s level of standards accreditation) is not specified by insurers. However, tightening CAR insurance market conditions could prompt insurers to tighten existing standards of certification.
An accredited monitoring partner will be required to provide sufficient staff numbers to monitor a site effectively. They will also have to prove they operate from premises that will not be affected by issues such as adverse weather, and to have backup monitoring solutions should operational issues arise with their assigned staff / premises.
Read more about site risk and insurance issues
- Reputational cover - discover how reputational cover can affect scandals related to security breach-related delays and bad publicity.
- Since the 2016 change in sentencing guidelines, Health and Safety Executive enforcement has risen, accompanied by soaring fines and costs, and even criminal prosecutions. Find out how these can be minimised: The Increasing Cost of Health and Safety Prosecutions
Partner with an expert
Site security comes with a unique range of risk and insurance issues. Contact your construction insurance broker for advice on contractors insurance and help with a construction site risk assessment. They will have the market expertise, insurer relationships and industry knowledge required to serve your business and its needs.