Brush up on builders risk insurance

By Megan Jameson, Midwest Construction Property Lead and 
Patrick McBride, South Region Construction Property Manager

Contractors and developers are busy these days; sometimes too busy to stay up to date on trends in their insurance coverage. While they’ve been building, builders risk insurance policies have been evolving in ways they should know. For example, who purchases the policy is no longer set in stone. Although contractors historically purchased builders risk, owners are now making the purchase more often and becoming savvier about buying the coverage.

New trends and changes regarding builders risk insurance have emerged in the construction industry. Are these changes on your radar?

1. Who purchases the policy can affect who is covered: Contractors should pay attention to specific sections of the policy, notably the Named Insured and Additional Insured components. It is important to understand who is responsible for purchasing builders risk coverage and what impact that has on coverage, terms and conditions, and claim payments with regard to the ability (or inability) to include all interested parties as additional insureds. A quality builders risk product will be broad regarding Additional Insured wording and include coverage for all parties with a financial interest in the project. Most importantly, the question "Is the contractor or owner responsible for procuring builders risk coverage?" should always have a clear answer through contractual agreement before the project breaks ground.
2. Changes in the workforce pose challenges: The shortage of skilled workers can heighten risks of defects for contractors and developers. With this shortage in mind, builders risk insurance providers often have a wealth of best practice and training programs, as well as checklists for higher-risk tasks such as wet work and hot work. Contractors can check with their insurance provider to see if these programs are available. Taking advantage of these programs could help contractors develop inexperienced staff and ultimately bolster their reputation in the industry.
3. Storms are increasing in intensity and frequency: While we’re noticing hurricanes impacting areas that normally wouldn’t experience them, and already hurricane-prone areas are seeing a greater and greater magnitude of storms, we’re also seeing that snowfall and heavy rainfall can cause significant damage in many parts of the country. Contractors should note whether their builders risk policy includes coverage for rain or snow-related damage.
4. Technology can add efficiencies: Sensors and other technologies are being used on construction sites to help deter theft and detect problems such as water damage. Contractors are using drones to help monitor projects’ progress and any losses. Contractors and developers should talk to their insurance providers about how these technologies can help them manage their risks as well as their costs.
5. Timing of policy purchase matters: Contractors or owners sometimes wait until the project is in progress to purchase a builders risk policy, which can make them vulnerable to uncovered losses early in construction. Delaying the purchase of this coverage until the project is underway may also mean an increase in cost. Purchasing before breaking ground delivers maximum protection and cost-effectiveness.

In the construction industry, builders risk coverage is no longer seen as just an add-on to other policies – it’s considered the backbone. Understanding the role builders risk plays in the contractual relationship between owner and contractor, and being aware of the way the policy has evolved, can help mitigate any confusion between owners and contractors on the job site.