Owner builders take on the role for various reasons, and sometimes that reason is quite simply to have control of the completion and fit-out work. Many would argue that that’s the fun part of the project, that really makes the house feel like a home. In those cases you might delegate the earlier work (e.g to lock-up stage) to a Registered Builder.
But Owner Builder BEWARE!
What you’ll learn in this Q&A with Mark Adams from Allrisk Insurance* is that, without exception, you MUST arrange Owner Builder insurance at the very beginning of an owner builder project, even if a Registered Builder is involved, and even if that builder tells you that you don’t need your own insurance!!
*Mark has been specialising in owner-builder insurance for the better part of two decades, and it’s safe to say he’s an expert 🙂
Mark, in your experience, what are some of the ways in which you’d commonly see a Registered Builder becoming involved in an Owner-Builder project, in that early stage of the build?
There are a few ways in which Registered Builders get involved, that I see from an insurance customer perspective, these include:
- Builder to Owner-builder (planned)
This is when a registered builder is on the council paperwork and contracted to build to the lock up stage. This is what was agreed between you and the builder, and quoted on that basis. The council record is later changed to note the owner builder, so that they can finish the project.
- Builder to Owner-builder (unplanned)
This is when a home owner uses a registered builder but changes their mind during the build. For example, the home owner didn’t like the builder or their work and decided to take over as an owner-builder.
This usually happens because of a dispute, but not always. If for whatever reason a contract with a builder is terminated, there’s still a house that needs completing and councils have to work with that. They’ll need you to either nominate who the new builder is, or they can put you down as owner-builder (subject to attaining the qualifications).
- Owner-builder only, with Builder as Contractor
You (as an owner-builder) are the builder noted on the council paperwork right from the start, but you intend to get a registered builder to ‘take charge’ of the project until it gets to lock up stage. This is by far the most common variation, and commonly (especially if you’ve used a certifier) you may not have looked carefully at the paperwork and realised that this is what is really happening.
Before we go on, can you please elaborate on the link between using a certifier and the paperwork and an owner builder not realising they are the builder?
Any time someone else does the council paperwork on an owner builder's behalf, it becomes easy to pay less attention to it, and/or to forget the content of it sooner. This can be the case if you use a private certifier, but there are also other professionals like project managers or architects who might have a hand in helping with the council application process. In these cases, I find that it’s more common for the owner-builder to be unaware of which of these variations applies, because it really comes down to what it says on the paperwork.
- Builder AND owner builder
I have seen this variation just recently and just once (I believe it was in VIC) where the one lot of approval paperwork showed the two distinct stages, and clearly stated the registered builder for the stages to lock up and the owner-builder for the final stages. This is very rare, and doesn’t actually help in any case.
So what are some considerations when it comes to insurance for the 4 variations above?
In every one of these cases, the registered builder is likely to say to you “Don’t worry about construction insurance. I’ve got that already, for this stage of the project”.
And in every case, that advice will be either WRONG or grossly MISLEADING.
No offence intended to registered builders – what they’re saying is a very reasonable assumption, despite being wrong.
Let’s break it down. Why is it wrong?
Variations 1 and 2 – Builder to owner builder (planned or unplanned)
In these two cases (remembering that variation 3 is the more common), the registered builder is at least correct in that their insurance will respond to a claim, while they’re on site… however..
After that things get messy….
Registering as an owner builder and taking over the project is the easy part. You’re now the licensed builder in charge of a construction site, with a lot of work already done that ideally you’ll want insured against loss and damage, fire, storm etc. You’re responsible for the works ahead, including the public liability risk, which is vital to insure.
Owner Builder Insurance is a very small niche market.
Other than ‘Allrisk Insurance’, who are the most often recommended supplier, you’ll find that 90% of owner builder insurance suppliers use just one insurance company’s product, with the same strict guidelines.
To put it bluntly, insurers DO NOT LIKE COMMENCED PROJECTS. They will either decline to quote, or they will supply the same pricing as if you’d insured at the beginning of the project, but with (often very significant) additional price loadings and higher excesses. Often they will also add certain exclusions, effectively removing some of the cover. Again, that’s IF they will quote at all.
Why don’t insurers like projects that are already in progress?
From the insurer’s perspective, risks and hence rates of claims increase throughout a project, meaning there’s more claims at the end stage. They’re also taking on a situation without knowing if there are complications or disputes with the previous builder, or possibly events that have occurred but not been reported or discovered yet. There may be other, even better, reasons, but the important point is simply that it’s at their discretion, and that’s how the market is.
Allrisk Insurance is unusual in that they deal with a range of suppliers, so for each situation can suggest the best one.
In short, you’ll either have trouble getting insurance at all, or you’ll pay more and get worse terms than if you’d insured the whole project from the start. But you’ll still need the insurance.
Back to the variations.
Variation 3 – owner builder only
This scenario is often described as if it was like cases 1 and/or 2. If you’re not 100% sure, check the council paperwork, and check who is shown as “the builder”. Is a registered builder named? Or is it just you as the owner builder? Most commonly, and as described here, it’s the latter (just you).
In this case YOU ARE THE BUILDER from the start. That registered builder you’re using for part of the project is your CONTRACTOR. The fact that they have insurance as a builder doesn’t change the fact that on this project they are NOT the builder. You are.
What’s the difference?
As the building materials arrive onsite they immediately belong to you. If they are lost or damaged it’s your financial loss, and simply put; nobody else’s insurance can cover a financial loss incurred by someone else (you). As the structures are being erected, they also belong to you. Same applies; if damaged, you need insurance for that. Nobody else can insure this loss.
Most importantly, you’re really in charge of the site. The registered builder is not, other than to the extent that you delegate authority. It still remains your responsibility and decision as the BUILDER to have delegated that authority. If the neighbour’s property is damaged, or someone is seriously injured, they’ll be looking up the council records which show who the builder is (again, it’s you), in order to make a public liability claim.
Why do registered builders say they have the insurance to cover the job?
Think of it like a registered builder doing work for another registered builder. This probably never happens. It’s not something the builder has had to think about. But that’s what is happening here.
You’re a builder and they’re working for you. You remain responsible and in charge of the site.
Their insurance is important; all contractors should have public liability insurance, but nowhere near as important as your insurance. Almost all serious claims for something that goes wrong on a construction site get directed at the builder in charge of the site (you).
Sometimes a contractor may have been negligent, and in those cases the insurers (or legal experts) can work out what the split of liability is (e.g. 50/50) between the contractor and the builder. But 99% of the time, the claim starts with the builder*, who is licensed to manage the site so bears at least part (usually the majority) of the responsibility for whatever went wrong.
*I don’t mean to ‘flog a dead horse’, … but again, that builder is you.
Ok, so you didn’t know this, and you’re already at the stage where you’re taking over as owner-builder?
See the end part of the section above for variations 1 and 2. You need to try to get insurance for a commenced project, and there’s a big disadvantage in that.
Variation 4 – Builder AND Owner-builder
Again, this is very rare. I’d like to see it happen more, because it is a very sensible approach for councils to take. If I had my say (i.e. if I was the insurer), in this scenario I’d say “No worries, your owner builder project hasn’t started yet. Let’s treat this like a renovation/extension project, and insure the remaining work as the Project Value, and provide extra cover for the Existing Structures”.
That would be fair and easy. Unfortunately however, I’m not aware of any insurer who shares this opinion. They will universally treat this as one project (e.g. the full build of a house), not two projects. And we have all the same problems as in the previous situations described above.
What’s your final piece of advice?
Don’t be put off from implementing one of the four variations described here, that allow you to get a Registered Builder to get you to lock-up stage.
Owner building is a great option but know up front that you need to arrange the insurance, despite what the registered builder might tell you, and regardless of how certain the builder is of what they’re telling you.
If you’ve already made the mistake, then contact Allrisk Insurance, who get a lot of these types of enquiries, and are able to supply a solution (albeit more expensive, and not as good as if it had been done earlier) for 99% of cases.
Well owner builders, that's great insight into the insurance side of owner builder, an important aspect to owner building! And if you're keen to understand the cost of insurance, follow this link, submit a few quick details and you'll get an on-the-spot, instant quote!
Until next time,