Do New Zealand builders and renovators need contract works insurance?

With the COVID-19 pandemic triggering a renovation boom among property owners in New Zealand, lack of proper coverage during the remodelling process has become a major source of risk, a recent survey conducted by insurance giant AMI and market intelligence firm Ipsos has found.

The poll, which was participated in by a national representative sample of 536 homeowners, has revealed that more than half, or 54%, of the 170 respondents who took on home improvement projects in the 18 months ending in November 2021 did not consider taking out contract works insurance (CWI) and a further 14% were in the dark about what this type of coverage really is.

Read more: Renovation boom could leave homeowners underinsured – AMI

“Homes undergoing major renovations enter a phase of being less structurally sound, which is why most home insurance policies have exclusions in place when homes are being worked on,” said Wayne Tippet, executive general manager of claims at AMI. “Contract works insurance is there to cover any damage caused while your home is structurally more exposed to risks.”

Tippet added that homeowners should put “their insurance needs top of mind” – especially with the survey results showing that 62% of renovators were planning further improvements to their homes this year – noting that getting CWI should be among their priorities.

What is contract works insurance and how does it work?

In New Zealand, contract works insurance is called by several other names, including builders risk cover, construction insurance, and contractors all risk coverage, but the purpose remains the same.

North Island-based building design company Summit Homes defines CWI as “indemnifying the policyholder(s) for sudden, unforeseen, and unintended physical damage or loss to the contract works during the period of insurance.”

Simply put, contract works insurance covers the cost of repairing or redoing ongoing construction or renovation projects damaged by an insured event such as fire, theft, or vandalism.

Read more: Report suggests mandatory insurance for new home builds and major renovations

Policies pay for up to the coverage limit, added Summit Homes, noting that the limit should accurately reflect the total completed value of the structure, including materials and labour costs but excluding land value. The design firm also said that the best way to determine the appropriate limit of insurance is by looking at the construction budget.

Most policies end on practical completion of the works, when any part of the works is occupied or used by the owner, on the expiry date shown in the policy, or whichever comes first.

Who arranges contract works insurance?

For new home constructions, the contract will typically require the builder to arrange coverage to cover any property that is being built, according to the Department of Building and Housing’s website. But when the work undertaken is for an existing structure such as home renovations and extensions, the building contract will typically require the homeowner to arrange the contract works insurance.

What does contract works insurance cover?

A contract works insurance policy provides coverage for sudden and accidental loss or damage to the construction or renovation project caused by an insured event. These perils include fire, theft, burglary, construction collapse, flooding, or storms. Damages caused by natural disasters such as earthquakes, landslips, and tsunamis are typically not covered but can be included as an add-on.

Damage to construction equipment and tools are also not usually covered, as are faulty workmanship and materials, which are covered by professional liability insurance. Consequential loss or losses due to delay, penalties, and liquidated damages, and damage to existing property, unless it has been specifically agreed upon to be included in the cover, are likewise excluded. CWI also do not provide protection if the builder fails to complete the work. An independent building guarantee is needed for this type of risk.

Read more: How builder’s risk insurance protects your construction business

Insurers in New Zealand providing contract works policies

The table below shows some insurance companies in the country offering contract works insurance, along with what their policies cover.