Construction All Risks · insurance
Construction All Risks (CAR) is one of the most core risk transfer tools in the international engineering contracting field. It is not a single insurance product, but a comprehensive protection scheme that uses construction projects as the subject matter of insurance and adopts an "all risks" underwriting approach. Its core logic is: except for exclusions explicitly listed in the policy, the insurer shall be liable for compensation for any accident occurring during the construction period that causes physical loss or damage to the subject matter of insurance.
From a legal perspective, CAR belongs to the category of property insurance, but it is fundamentally different from traditional property insurance:
In international engineering practice, the obligation to insure CAR is usually stipulated by the employer in the engineering contracting contract. Clause 18 of the 1999 Red Book and Clause 19 of the 2017 edition of FIDIC (International Federation of Consulting Engineers) both clearly provide that the contractor shall insure against loss to the works, goods, and equipment during its performance period, and the insured amount shall cover the full replacement cost of the contract. In the procurement guidelines of multilateral development banks such as the World Bank and the Asian Development Bank, CAR is also listed as a mandatory or recommended insurance item.
For Chinese "going global" enterprises, CAR is not only a contractual compliance requirement, but also a key financial tool for hedging the triple risks of overseas politics, nature, and technology. For a typical overseas EPC project, if CAR is not insured, a single flood or riot can wipe out several years of profits.
| Element | Specific Content | Typical Data/Explanation |
|---|---|---|
| **Insured Amount** | Replacement cost of the works + temporary works + construction machinery + third party liability limit | The works itself is usually 100%~110% of the contract price; third party liability limit per occurrence is USD 500,000~5 million; construction machinery is listed separately |
| **Insurance Period** | From commencement/material arrival to completion and handover + maintenance period | Construction period is usually the contract period + 3~6 months; maintenance period (defects liability period) is usually 12~24 months and can be insured separately |
| **Rate** | Charged as a certain percentage of the total engineering contract price | Building projects in Asia: 0.15%~0.35%; roads/bridges: 0.25%~0.50%; hydropower/tunnels: 0.40%~0.80%; high-risk areas increase by 30%~100% |
| **Deductible** | The portion borne by the insured per occurrence | Natural disasters usually USD 20,000~100,000; other accidents USD 10,000~50,000; construction machinery deductible is often 10%~20% of the loss amount |
| **Applicable Scenarios** | Various civil, building, and erection works | Buildings, roads, bridges, tunnels, hydropower stations, ports, pipelines, factory installation; not applicable to pure equipment procurement or operation period |
| **Territorial Scope** | The country where the project is located and the areas listed in the policy | Usually limited to the construction site and temporary storage yards within a certain distance; cross-border transportation requires separate cargo insurance |
| **Main Exclusions** | War, civil commotion, nuclear radiation, design errors, wear and tear, intentional acts | Some exclusions can be added by endorsement (such as strike and riot extension, design liability extension) |
Key Numerical Example: A Chinese enterprise contracted a USD 250 million road project in Pakistan. The CAR policy conditions were: insured amount for the works USD 250 million, third party liability USD 5 million per occurrence, construction machinery insured amount USD 8 million, deductible USD 50,000 for natural disasters and USD 20,000 for others, rate 0.42%, total premium approximately USD 1.05 million. The insurance period was 36 months construction period + 12 months maintenance period.
Who initiates: Usually the contractor initiates the insurance, with the employer as co-insured. If the contract stipulates that the employer shall insure, the contractor needs to confirm that the policy covers its subcontractors and its own interests.
Where to arrange:
How long:
What materials:
Process steps:
Case One: A Chinese Enterprise's Saudi Light Rail Project (2010)
The contract amount of this project was approximately USD 1.77 billion, with a construction period of 48 months. A CAR policy was insured, with the works insured amount of USD 1.8 billion, third party liability of USD 10 million per occurrence, and a rate of 0.38%. During construction, an unusually heavy rainstorm occurred, causing water accumulation in the underground tunnel section and damage to some installed tracks and electrical equipment. The claim amount was approximately USD 42 million. The insurance company partially refused compensation on the grounds that "the rainstorm was a natural disaster, but the drainage design was insufficient," and ultimately paid USD 28 million, with a deductible of USD 500,000. Lesson: CAR does not cover design defects, and drainage system design liability requires separate professional liability insurance.
Case Two: A Chinese Enterprise's Ethiopia Road Project (2016)
The contract amount was USD 120 million, insured with CAR, rate 0.55%, third party liability USD 3 million. During construction, large-scale local riots broke out, the construction site was attacked, construction machinery was burned, and the completed roadbed was destroyed. The policy did not include a "strike and riot" extension, and the insurance company refused compensation. Later, with the intervention of Sinosure, approximately USD 18 million was compensated through the political violence insurance under "Overseas Investment Insurance." Lesson: High-risk areas must add strike, riot, and political violence coverage, or use a Sinosure combined solution for coverage.
Case Three: A Chinese Enterprise's Indonesia Hydropower Project (2019)
The contract amount was USD 450 million, insured with CAR, works insured amount USD 480 million, construction machinery insured amount USD 30 million, third party liability USD 5 million, rate 0.72%. During construction, a landslide occurred, causing the diversion tunnel to collapse and two excavators to be buried. The claim amount was approximately USD 26 million. The insurance company paid USD 22 million, with a deductible of USD 100,000. Key point: This project added a "geological hazard extension clause" at the time of insurance; otherwise, the landslide might have been classified as "natural wear and tear" or "design error" and refused.
Contract clause pitfalls:
Legal difference pitfalls:
Exchange rate risk:
Cultural differences:
Other risks:
| Solution | Coverage | Applicable Scenarios | Advantages | Disadvantages |
|---|---|---|---|---|
| **CAR (Construction All Risks)** | Works + third party liability + machinery | Various projects under construction | Broad scope, contractually mandatory | Does not cover design errors or indirect losses |
| **EAR (Erection All Risks)** | Equipment installation + commissioning + third party | Factory and power station installation | Covers commissioning period risks | Does not cover civil works |
| **DSU (Delay in Start-Up)** | Financial loss due to completion delay caused by loss | High-yield projects with fixed grid connection/opening dates | Compensates expected profit and financing costs | High premium, strict underwriting |
| **MB (Machinery Breakdown)** | Sudden machine failure during operation | Operation period after completion | Covers equipment risks during operation | Does not cover construction period |
| **Sinosure Overseas Investment Insurance** | Political violence, exchange restrictions, expropriation | High-risk countries | Covers political risks excluded by CAR | Does not cover natural and technical risks |
| **Employer Direct Insurance** | Employer as insured | Projects with strong employer control | Unified management | Contractor needs to confirm its interests are covered |
Selection advice: For building projects in low-risk countries, choose the basic CAR solution; for high-risk countries or large infrastructure, choose CAR + strike and riot + Sinosure combination; for projects with fixed revenue milestones, add DSU; for erection works as the main component, choose EAR.
Q1: What is the difference between CAR and ordinary property insurance?
A: CAR covers dynamic works under construction, while ordinary property insurance covers static fixed assets. CAR only lists exclusions, while ordinary property insurance lists named perils.
Q2: Who should insure CAR?
A: Under FIDIC contracts, usually the contractor insures, with the employer as co-insured. Some contracts stipulate that the employer insures.
Q3: Approximately how much is the CAR premium?
A: In Asia, it ranges from 0.15%~0.80%, depending on project type, regional risk, and deductible.
Q4: Does construction machinery need to be insured separately?
A: It is recommended to list the insured amount separately; otherwise, compensation is made in proportion to the works and is usually insufficient.
Q5: Are losses caused by design errors covered?
A: Standard CAR does not cover them. A "design liability extension clause" must be added or professional liability insurance must be separately insured.
Q6: Are strikes, riots, and terrorist attacks covered?
A: They are standard exclusions. A "strike, riot and civil commotion" extension must be added, or coverage can be obtained through Sinosure political violence insurance.
Q7: What should be done if problems arise during the maintenance period?
A: The construction period policy usually does not cover the maintenance period. A separate maintenance period policy or extension must be insured.
Q8: Are claims paid in USD or local currency?
A: It depends on the policy agreement. It is recommended that the main insured amount be in USD to avoid local currency depreciation risk.
Q9: How soon after a loss should it be reported?
A: Usually within 48 hours, and some policies require within 7 days. Late reporting may result in refusal.
Q10: Can subcontractors' losses be compensated?
A: Subcontractors need to be listed as co-insured or additional insured; otherwise, direct claims cannot be made.
Q11: Can CAR cover indirect losses?
A: No. Indirect losses require DSU (Delay in Start-Up) insurance.
Q12: What should be done if material price increases cause replacement cost to rise?
A: Add an "inflation clause" at the time of insurance or regularly adjust the insured amount.
Q13: What should be done about mandatory local cession?
A: Accept local policy issuance, but international reinsurance support can be required to ensure terms are in line with international practice.
Q14: Can a CAR policy be assigned?
A: Yes, but written consent from the insurance company is required. This is common in project finance assignments.
Q15: Can Sinosure and commercial CAR be used at the same time?
A: Yes. CAR covers natural and technical risks, while Sinosure covers political and exchange risks, forming a complementary arrangement.