Construction Sum Insured
Construction sum insured is the total contract value of the works, materials, plant and site facilities to be completed under a Construction or Erection All Risks policy, forming the basis on which premium and probable maximum loss are calculated.
- Category
- Construction/Project · CHF
- Data type
- Number
- Risk drivers
- Severity, Accumulation
- Underwriting impact
- Premium, Sublimit
Typical proposal-form questions
- What is the total contract value of the works, including materials, labour, freight and customs duties?
- Does the declared sum include principal-supplied materials, temporary works and site facilities?
- Is the sum insured a fixed final contract price or subject to escalation and variation orders?
Evidence
- Construction contract and bill of quantities
- Cost estimate or engineer's certificate
- Variation order log
Why it matters for underwriting
The construction sum insured is the single most important rating variable in Construction and Erection All Risks (CAR/EAR) underwriting: premium is normally quoted as a rate applied to this figure, and it anchors the probable maximum loss estimate that drives capacity and reinsurance decisions. Because CAR/EAR policies are written on a completed-value basis before the final cost of the works is known, underwriters must assess whether the declared sum realistically reflects the finished project, including materials that have not yet been delivered to site. An understated sum exposes the insurer to average provisions being applied against the policyholder at claim time, while an overstated figure inflates premium without justification.
Capturing the attribute and evidence
Proposal forms ask for the full contract value of the works, explicitly clarifying whether principal-supplied materials, temporary works, site facilities and professional fees are included. Underwriters corroborate the declaration against the construction contract, bill of quantities and, for larger projects, an independent cost estimate or engineer’s certificate. Because contract sums frequently change during execution, a variation order log is reviewed at renewal or mid-term adjustment to confirm the sum insured still matches the anticipated final cost.
Effect on coverage, premium and conditions
The construction sum drives the base premium rate and the overall limit of indemnity, and it sets the reference point for sublimits on debris removal, professional fees and expediting costs, which are typically expressed as a percentage of the sum insured. A materially understated sum can trigger an average (co-insurance) clause reducing claim payments proportionately, while insurers may require periodic sum-insured reviews or an escalation clause on multi-year projects to keep the value current.
Mitigation measures
Policyholders reduce valuation risk by maintaining an itemised, current bill of quantities, notifying insurers promptly of material variation orders or scope changes, and, for large or long-duration projects, agreeing a periodic revaluation or index-linked escalation clause so the sum insured tracks actual project cost through to completion.