Like an ill-fitting impulse purchase that promises much but often fails to deliver, builders risk insurance should never be a one-size-fits-all solution for clients’ construction projects. Unfortunately, that is what agents could inadvertently get when choosing a partner who lacks experience or expertise in the market. Agents who fail to properly address clients’ needs will run the risk of errors and omission claims, not to mention dissatisfied clients.
Builders risk policies should be structured with care, and coverage should offer protection from related perils, such as fire, theft and vandalism, and any other territory or project-specific risks.
The starting point for determining coverage needs is reviewing the construction contract and related documents, but the analysis doesn't stop there. The policy should be broad with limited exclusions. Where exclusions do exist, some insurers offer opportunities to buy back exclusions through the purchase of specialty coverage or an endorsement for items like water intrusion and wind. Selecting a partner with the product knowledge to address these factors will ensure the risk is appropriately covered, including the ability to correctly identify the following:
- Covered individuals. Construction contracts generally identify who should be covered under the policy, including the general contractor, owner and subcontractors. Builders risk policies must cover all required parties; failing to do so could create liability issues for those involved. An experienced, knowledgeable insurance partner can help ensure there are no gaps in covered individuals.
- Covered property. Will coverage be sufficient to cover the total structure and the materials being installed in the event of a loss? And should coverage extend to offsite materials, tools and equipment, temporary structures, excavations, etc.? These are the questions that need to be evaluated, with the help of experienced builders risk professionals.
- Policy exclusions and endorsements. Builders risk professionals who understand the interconnected relationship between the construction contract and the insurance policy can help agents ensure policies cover the appropriate risks. For example, if the construction contract specifies that, because of the project’s location, earthquake coverage must be secured, it is important for agents and clients to understand that such coverage is normally excluded, unless specifically added through a policy endorsement. Similarly, a client who holds out their business as being eco-friendly may want to include an endorsement for “green” or LEED construction.
- Other documents. In addition to identifying the above information, agents and the insured parties may be asked to provide copies of all project-related documents. In addition to standard items such as the contracts between contractors and subcontractors, leases, permits and loan agreements, this list may also include things like equipment guarantees and warranties, pro-forma cash flow projections for the completed project, and elevation certificates. All of the documentation helps the agent and insurer evaluate proposed coverage.
As with any complex risk, construction brings nuanced considerations for the agent tasked with securing coverage. Many inland marine insurers offer builders risk insurance; however, these insurers lack the deep expertise and distinct knowledge offered by an entity dedicated to the construction industry. Likewise, a one-stop shop for insurance products offers convenience, but it often does not provide the comprehensive insight required to deliver the best solutions for clients. Agents should always advise their clients on all of the exposures associated with each individual construction project, as these will often far exceed the scope of builders risk insurance. Having a specialist to rely on for this type of insight can prove invaluable and can position an agent as a trusted resource for clients. To glean additional insights on essential considerations for choosing a builders risk provider, download An Agent's Guide to pursuing the Right Builders Risk Partner: 9 Factors for Success.
This is intended as a general description of certain types of insurance and services available to qualified customers. 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.
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