In our more than 40 years in the insurance industry, one of the most common questions we receive is, “What does builders risk insurance cost?”
Our answer is simple: It depends.
But on what does cost depend? What factors of a construction project impact the builders risk rate? And why is the question of builders risk cost so challenging to answer?
Just as seemingly small details of a project under construction can have a massive impact on its outcome, they also impact the cost of builders risk insurance. Below, we discuss three elements that have the greatest impact on cost: project type, location and construction type.
- Project Type
Project type is likely the most obvious starting point when determining what clients would pay for builders risk coverage. Typically, project type options include installation, new construction, remodeling excluding coverage for the existing structure, and remodeling including existing structure.
Installation projects and new construction projects tend to be the most favorably rated. The cost of installation often has more to do with project duration, because clients only need to cover what is being installed, and its time frame tends to be shorter.
Commercial and residential new construction builders risk may have reduced rates compared to remodeling builders risk (or a homeowners /permanent property policy) because the policy covers everything from ground zero, rather than a structure already standing.
Remodeling, however, can be the most costly project type. The reason, simply put: clients are taking risks by making changes.
Rates for remodeling excluding the existing structure often are the next most favorable after new construction. Though clients are excluding the coverage for the existing structure, these policies must still be underwritten to ensure any renovations will not undermine structural integrity and cause collapse.
Rates for remodeling including the existing structure can be the least favorable due to the risks facing the existing structure from the start. When remodeling, even the most experienced contractors walk into the unknown. If the project foundation is altered, for example, the building may collapse. Or perhaps the project requires the removal of a load-bearing wall, which would require support to be installed to prevent damage to structural integrity. Existing structures bear many unforeseen obstacles, which means more risk to cover.
Location is a crucial factor in determining the builders risk rate. Aspects of location that could affect cost include everything from proximity to fire stations, to inherent location-based risks like proximity to (or location within) flood zones, wildfire states (most often California, Washington and Oregon), coastal areas (which are often more prone to hurricanes, heavy rainstorms and tornadoes), wind or hail-prone areas, states within Tornado Alley (including but not limited to Kansas, Oklahoma, Texas, Mississippi, Alabama, etc.), and more.
- Construction Type
The higher quality the construction, the better it can withstand perils and thus may be more favorably rated. Projects constructed with fire-resistive materials, for example, would likely be rated more favorably. On the opposite end of the spectrum, wood-frame construction (which is the most common construction type for residential projects) catches fire very easily. In fact, once a fire begins in wood-frame construction, it’s so quickly engulfed in flames that it’s often considered a total loss. These projects typically have the least favorable rate of any construction type.
We’ve only covered three factors that influence the cost of builders risk insurance. Agents should also consider the benefits of admitted versus non-admitted carriers, as well as optional coverages that may impact price but are necessary to best protect your clients’ specific course of construction exposures.
So, how much does builders risk truly cost? Only your underwriter can determine the answer for your specific risk, but reviewing a client’s project with these factors in mind may help guide your expectations and lead the conversation with your clients.
However, builders risk insurance varies widely by provider. To learn what to look for when choosing a builders risk insurance provider for your personal and commercial lines clients, download the Builders Risk Insurance Checklist.
For more information, or to learn how your client’s project might be affected by these factors, contact us at (800) 800 – 3907.
The guidelines provided are intended as a general overview of the factors affecting builders risk pricing through US Assure and are not a guarantee of price, coverage or liability. For information regarding a specific risk to insure, contact our builders risk specialists. Your policy is the contract that specifically and fully describes your coverage. The description of the policy provisions gives a broad overview of coverages and does not revise or amend the policy.