Builders Risk Insurance: Start with 6 Fundamentals

Builders risk insurance is a general term for course of construction coverage that insures the materials, fixtures and/or equipment being permanently installed during the construction or renovation of a structure should those items sustain physical loss or damage from a covered cause of loss. Individuals or entities, including contractors, business owners, homeowners, or financial institutions are often primary builders risk clients.

Understanding the client’s project specific needs is key to maximizing this coverage. Typically, construction contracts should include the basic coverage requirements and provide direction for the entity responsible for securing the insurance. In most cases, the owner of the structure or the builder of the project will be insured under the policy. Other parties of interest, such as lending institutions, may also need to be contractually included as additional named insured’s.

Beyond these basics terms, there are several fundamentals every agent new to the insurance industry or maybe just new to insuring construction related risks should know about builders risk insurance.

1. How to choose a provider? Offering a provider with a proven track record of favorable claims history is a critical factor when advising any client. Providers that practice sound and consistent underwriting, have expertise in construction and remain consistent with respect to appetite and pricing, tend to be very reliable partners.
2. When do builders and owners purchase builders risk? The best time to maximize builders risk insurance coverage is before any construction starts on a project. This minimizes the risk of unexpected losses. It also greatly reduces the risk of any dispute between an insurer and a policyholder, or even between the policyholder and additional named insureds.
3. How to determine the project value? Zurich defines total completed value as the total of all costs associated with the building and designing of the covered property, including labor, overhead and materials. The total completed value excludes land cost. In addition to the building and design costs, a builders risk customer may choose to insure a percentage of the building profit. Agents should ask clients to share a copy of the construction agreement or cost breakdown to review a list of required coverages and verify the total completed value.
4. How to choose the right policy? In general, construction can be categorized into three projects types: new construction, remodeling or installation. The right policy type and coverage offering will vary based on the buyer and project type
5. How to select the right coverage? During the course of construction, a structure is exposed to many perils. Fire, wind and theft can be devastating but not adequately insuring a client’s construction project can be even more severe. It is critical agents review coverage options and exclusions to ensure the client receives the most comprehensive coverage for the project.
6. What’s required to secure a quote? Agents should expect to provide basic information to submit a builders risk application, such as insured name and mailing address, risk location and value, and builder information.

Solid knowledge of the basics is an important place to start before securing builders risk insurance. Agents can glean more insight to these fundamentals by downloading,From Groundbreaking to Remodeling: Builders Risk 101 Guide.