The most important figure on a CAR policy isn't the premium, but the sum insured: this is what tells you up to what value the insurer will stand behind you. If this figure sits below reality, even the finest cover is left incomplete – under-insurance isn't a theoretical risk, it's a very tangible deduction at claim-settlement time.
- The sum insured is the works' full reinstatement value: materials + labour + related costs.
- Your own labour and materials received free of charge are also value – just because they weren't invoiced doesn't mean they don't need replacing.
- In the case of under-insurance, the insurer typically settles proportionally.
- If the project value rises along the way, the cover needs raising too – this is a routine notification.
What makes up the value of the works?
The starting point is the value under the works contract – but it doesn't always end there. It includes the cost of materials and labour, materials to be built in that are stored on site, any client-supplied materials (which the contractor doesn't invoice but which end up in the works all the same), and typically related costs: design, transport, customs, testing and commissioning. The exact scope is fixed in the wording – that's why it's worth going through the full project data sheet, question by question, when requesting a quote.
The trap of under-insurance
If works worth 100 units are insured for 60, the insurer typically settles the loss in that same proportion – even for a partial loss. This is the principle of proportional (average) settlement, and it isn't a penalty, it's the balance between premium and risk: pay a premium for half the value, and you get half the cover. The lesson is simple: setting the sum insured is not the place to optimise the premium. This genre has a relative in home insurance's under-insurance rule – the principle is the same, only the stakes are project-sized.
When the value rises along the way
Rising material costs, extra work, growing technical scope: the value of a construction project rarely stays where it was at the start. CAR can keep up with this – but only if someone tells it to. Notifying a rise in value should be as much of a routine as notifying a change of deadline: the process is shown in the change-notification article, and its contractual/tender angle in the modification article.
Practical routine at inception
Three questions are worth asking. One: does the contract value include everything that would need replacing in a claim? Two: is there client-supplied material or your own labour that doesn't show up in the invoices? Three: what's the realistic range of value movement, and how does the wording handle it (automatic tolerance, notification duty)? Anyone who can answer these three questions turns the sum insured from a risk into a strong point – the rest is added by the contract-works cover article.
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