Self-build - Laying the foundations

With a rash of television programmes and specialist magazines, building your own home has never been more popular. Barrie Etchells reports on the types of insurance every self-builder should consider

Years ago, building your own home was considered to be something that only architects and those in the building industry could undertake.

Now, with a plethora of advice on offer, from self-build and design television shows, regional exhibitions and specialist magazines, this once unattainable dream is becoming a reality for many ordinary people - and the insurance industry needs to keep pace with these changes.

Pension and investment scares have resulted in an increasing number of people putting money into property and using it as their 'safety net' for retirement. Latest planning figures suggest that self-builders have not been put off by the slowdown in house price growth - if anything they are ploughing more money into construction. In the fourth quarter of 2004, planning authorities in England received 159,000 applications for planning permission and other related consents. This is the largest number received in the October to December peak since 1988.

Never before has the self-builder been faced with such a wide choice of products and services. Sadly, however, insurers and brokers often come into the equation late in the day, as insurance and risk management languishes at the bottom of a self-builder's 'to do' list - behind planning, choosing a construction method, layouts and project management.

As an industry, we need to push the message harder that insurance is, in fact, the most crucial issue. Anything that puts stress on a self-build timeframe or budget - an accident that incapacitates the self-builder, a serious on-site injury that requires investigation, theft, fire, flood or having to meet legal fees - can have a catastrophic effect. With more people opting for the self-build route, their exposure to this minefield of risks will continue to increase.

So what cover is needed? Public liability cover should be in place once the land or site is purchased. A site owner needs to protect against potential claims and self-builders must be encouraged to take steps to prevent/discourage access, taking account of obvious hazards.

Existing structure insurance is also needed. As well as protecting the owners' interests, lenders require such insurance. As with land, the property should be protected against unauthorised access, for example from squatters or children.

'Contractors all risk' insures the structure from the first footings to final completion, all the actual building work and associated materials.

It also provides cover for materials while on-site and in transit and can be extended to insure any owned plant and tools. Additionally, specialist self-build policies provide cover for existing structures and caravans or site huts.

Employers' liability

Employers' liability is necessary for those that intend to directly employ sub-contractors. Self-builders need to be made aware that an injury to a self-employed person, friend or volunteer could result in an action against the site owner as an 'employer'. This cover may not be required if hiring a firm with its own people, management and equipment.

Personal accident will serve to insure the site owners themselves, as incapacitation can affect budgets and timescales.

As far as legal expenses insurance is concerned, contractor/supplier disputes are one of the most common causes of budget overrun. If work or materials are substandard and the site owner is in dispute with the contractor, this cover can help speed things up. Many policies also provide cover for squatter evictions and other legal problems.

Risk management, as we all know, goes hand in hand with insurance, so self-builders must not be allowed to sit back and assume that because their cover is in place, the risks posed by their site have been reduced.

Adequate fencing, signs and security are vital. A serious incident could threaten a project through the risk of prosecution, additional interest charges or other costs resulting from delayed completion.

Brokers have a part to play in encouraging a self-builder to consider safe systems of working. Guidelines must be in place focusing on frame erection; working at height - roofing, cladding and painting; working with heat - blowtorches, bitumen and welding equipment; scaffolding; the risk of asbestos; and excavations.

Underinsurance estimations

Records should also be kept, detailing who is in charge of operations; the safe means of access to and from all work areas; any lifting appliances - including on-site position and gear to be used; storage of materials and methods of dealing with hazardous substances; how the work is to be carried out; communications; equipment to be used; protective clothing and equipment to be worn.

Underinsurance has always been an issue. In the self-build market, customers will be asked to estimate the professional rein-statement cost of their property - the cost of self-building the home again should there be a total loss. Site clearance, architects costs, as well as building and materials fees, all have to be taken into account.

Underinsurance has two implications. Firstly, if a loss occurs two days before the completion of a two-year project, the original building and material costs, for example, will have increased. This leaves a shortfall between the first estimate and the actual cost of rebuilding some two years later. In recognition of this, many providers offer a 'buffer' of up to 125% of the total re-build cost. However, insurers will base their repayments on re-build figures provided on inception of the policy and, if these estimates are low, even a 25% top-up may not cover the shortfall.

Secondly, insurers proportion the payouts of any claim upon the reinstatement costs given by the self-builder. For example, if the reinstatement cost of a building is £100,000 but, to reduce premiums, the self-builder has advised it would be £50,000, a partial loss claim for £10,000 would result in the insurer only paying out £5000.

Self-build was once a niche market but, as it grows in popularity, the industry must look at how it is servicing this sector and encourage self-builders to put insurance and risk management higher up their planning agenda.

Barrie Etchells is managing director, Belmont International.

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