How to Calculate Insurance Cost.
The estimation of financial costs in an economic proposal includes the cost of insurance and the financial cost itself. This post examines the costs and types of insurance and sureties of bond…
How to Determine the Types and Cost of Insurance to be Charged in a Bidding Process
Time needed: 6 minutes.
Types and cost of Construction Insurance.
Estimators should follow the following steps to define the types and costs of insurance to be included in the economic proposal of their offer:
- Determine types of insurance required by the Client.
The bidding documents should establish the types of insurance required by the Client, the scope of coverages, and the sums insured.
We must take care to ensure that any other insurance required by the labor legislation in force is not missing.
The insurance commonly used in the construction industry is discussed below and is summarized in the following table.
- Establish which insurance companies are accepted by the Client.
It is necessary to identify which insurance companies are authorized by the client.
If the information does not appear in the bidding documents, a written consultation should be made to our Client. - Final step
Having defined all the above, the next step is to request quotes from different insurance companies in order to choose the most convenient one.
Types of Insurance to Consider in the Proposal
Coverage to be contracted for bidding
-Bid bond insurance
The bid bond is a temporary guarantee that is returned to the bidder if his proposal is not accepted.
It is returned after the work has been awarded to the successful bidder.
We charge the costs of these policies to overhead.
Insurances Required at the Beginning of the Work
Insurance is required by the contractor and subcontractors.
–Workplace accident insurance
We contract these insurances with labor risk insurance companies.
These are private companies hired by the employers to advise them on prevention measures and to cover damages in case of labor accidents or occupational diseases of the workers.
An occupational accident is defined as an unexpected event that occurs on the construction site or during a trip between the worker’s home and the workplace or vice versa (in the itinerary)
–Worker’s life insurance
This is a special social benefit paid by the employer that covered the risk of death of workers, whatever the cause.
-Civil liability for constructions
The purpose of the civil liability insurance for constructions is to cover the responsibilities derived from the potential damages to third parties that the execution of a construction or repair work may cause.
General liability insurance does not cover damages resulting from professional mistakes that are provided by other types of liability coverage.
-Professional liability insurance
Coverage is aimed at protecting professionals against claims from clients and/or third parties for acts that generate financial losses based on errors, failures, or omissions committed during performing their activities or provision of their services.
-Contractors pollution liability (CPL)
Pollution insurance covers costs associated with pollution cleanup, and liability claims for pollution-related injury, illness or death.
The policies cover any type of contamination caused to soil, groundwater or property.
-Business Vehicle and Commercial Auto Insurance
Against third parties for the contractor’s motor vehicles affected by the execution of the contract.
This insurance covers from cars and trucks to much larger vehicles, such as dump trucks, concrete mixers, etc. (charged to the cost of the equipment)
-Contractors Equipment Insurance
These insurance policies cover property used by construction professionals, contractors and subcontractors, on the job site or during transportation, and including:
Contractor’s tools, equipment and supplies (pneumatic hammers, drills, electric generators, etc.)
Owned or leased mobile equipment (excavators, loaders, cranes, etc.)
Computer equipment and data (laptops, tablets, private project data)
How to Calculate Insurance Cost – Surety insurance or guarantee insurance
-Guarantee insurance to ensure compliance with the contract
Surety insurance or guarantee insurance is an insurance contract by which the insurer undertakes to compensate the insured for damages and losses suffered if the policyholder cannot comply with legal or contractual obligations.
-Surety insurance to replace the retention with repair funds
As determined in the specifications, the works are certified according to their progress, in these cases, the insured keep between 5 and 10% of each certification as a repair fund, this amount should respond for hidden defects or damage from 6 months to 2 years after completion of the work.
The function of the repair fund policy is to replace this retention and to respond up to the total amount to the insured for the aforementioned defects or flaws.
-Policy of guarantee for financial advance and/or collection
The Client, before making an advance payment, requires the contractor or supplier to cover the amount of any financial advance with a bond policy.
-Construction and erection insurance during the execution of a project. All Risks
This insurance covers all risks, including fire, damage caused by natural catastrophes, theft, design or maintenance errors, and loss of profits, among others.
All these risks must be covered.
Large clients who work with different contractors already have this coverage in place and therefore do not require individual coverage for each contractor.
-Any other insurance required by current labor legislation
How to Calculate Insurance Cost – Client requests
Generally, the Client requests that insurance policies include the following clauses:
- Clause waiving subrogation by the insurer against the client. (Known as the non-repetition clause)
- Clauses that prevent the insurer from modifying and/or canceling the insurance without prior notice to the client.
The client monitors the validity of each policy and compliance with the requirements of the tender documents.
Definitions
Policy: The policy is the document that gives validity to the insurance contract agreed between the insured and the insurer.
This contract specifies the requirements, rights, and obligations of the parties involved.
Coverage: The insurance coverage is the commitment assumed by the insurer to pay an indemnity to the insured (or his/her beneficiaries), in order to repair the consequences of a loss.
We should note it that coverage has a limit known as the insured capital.
Premium: The insurance premium is the price of the insurance, that is, the price the insured pays for the coverage he receives from the insured risk to his insurance company.
The premium guarantees the insurer must fulfill the benefit it has agreed with the policyholder.
The following post discusses how to calculate the cost of finance in construction projects.