What is Builders Risk Insurance & Who Needs It?
Builders Risk Insurance practically describes itself. It is a form of property insurance covering builders’ projects, including buildings, structures, and related assets when they are under construction. Builders Risk Programs also cover remodeling projects that don’t fall under a homeowners policy.
The coverage is known as “course of construction” insurance because it ends when a project completes. Most policies have provisions to extend the end date because construction completion overruns are common occurrences. There are no alternative coverages to builders risk insurance. A course of construction policy is unique, and as such, insureds cannot replace their specialized coverage with a commercial general liability or commercial property insurance.
Specifically, project owners, general contractors, subcontractors, architects, and lenders are prime prospects for builder’s risk insurance programs. In general, prospects are professional commercial and residential builders and people or entities with a financial stake in completing the construction project. Or, they are homeowners with a remodeling project that their homeowners insurance policy does not cover.
Features of Builder’s Risk Insurance
Since construction projects are unique to themselves, insurance carriers can’t use standardized policy forms when offering builders risk insurance. However, this condition creates flexibility for contractors and project owners to optimize properly insuring complex builders risk management strategies. Insureds can design protection against losses when weather, fire, vandalism, theft, or other named perils occur on a construction site requiring repairs and replacing structures and buildings and construction materials.
What Types of Property Does Builder’s Risk Cover?
Builders risk coverage is specific to buildings and structures and related assets while they are in the course of construction. Once a project is complete, the coverage terminates in favor of standard liability and property policies.
What Else Does it Cover?
Because they cover construction projects which are unique developments, builders risk insurance programs are customizable and different. Besides covering buildings and related assets, builders risk policies can include extensions that protect common construction materials and costs such as:
In addition to protecting from property damage on construction projects, builders risk can cover additional soft costs or expenses not related to construction expenses from delays stemming from property damage. Examples include lost sales or rental income and unexpected expenses from delays to the project completion, including real estate taxes and interest on loans.
Builders Risk Exclusions
Builders risk coverage comes with weather-caused and natural disaster exclusions for floods, earthquakes, and wind damage in specified coastal areas. Protection from these perils may be eligible for coverage through extensions or endorsements to the policy and are advisable for when the project’s location has known exposure to such risks with catastrophic potential.
Additional named perils are added as exclusions in builders risk policies, and they will vary by policy, including:
War and terrorism.
Faulty design, workmanship, planning, or materials.
Tools and equipment depending on the policy.
Partial occupancy exclusions.
Choosing the Right Builders Risk Insurance Policy
Because of the complexities and differences in builders risk coverage and specialized needs of insureds, finding the optimal builders risk insurance program is challenging. Managing changing exposure as projects evolve presents the need for broad protection for projects spanning multiple locations or limiting coverage to a single site with specific risks. Expert advice can help to avoid gaps in coverage and identify less apparent risks.
Timing is also a critical factor in policy selection. Defining when the policy goes in force and what actions or dates prompt coverage to begin is crucial. Equally important are the specifics of when a policy terminates. Determining what causes the termination is an essential factor to avoid unwanted loss exposure. Specifically, the policy will set forth the conditions that lead to the policy’s termination. Usually, when the building begins to have occupants or the structure is finished and ready for its intended use.
It is necessary to understand where potential exposure exists due to policy exclusions and to what extent they limit what is covered to pay for problems related to defective work or faulty execution. Usually, work done by subcontractors is an exclusion meaning the policy does not help pay for losses that stem from repairing or correcting substandard or defective work done by them. Such typical situations make it imperative for all involved to have a clear picture of what is covered and what is not covered by the builders risk policy and what extensions, endorsements, or other coverages can close the gaps.
Builder’s Risk Insurance Costs (and what factors affect the price)
Because all builders risk insurance programs are unique, the required premium varies based on the insured’s particular needs and several determining factors. Some policies require a more comprehensive range of coverage or additional policy extensions to protect the project entirely. These are primary factors that affect the cost of builders risk insurance programs:
Project’s geographic location.
Construction materials with wood-framed projects are typically more expensive (In the wake of the pandemic, construction supplies have jumped 40%.)
Type of project and expected cost to completion.
Policy details specify coverage amounts, policy limits, and deductibles.
Benchmarks for project’s build-out and completion.
Discretionary coverage for earthquakes, wind damage, flooding, soft costs, legal expenses, license fees, loss of business income, and additional exposures from the list of exclusions above.
Additional data that affect premiums include the insured’s experience in completing the project’s tasks, the insured’s credit history, and claims experience for similar coverage. Valuations and stipulations from lenders can affect a project’s cost by enforcing higher limits than the insured would choose without the lender’s demands.
Best Builder’s Risk Insurance Programs
To find the best Builders Risk insurance programs quickly, search the Program Business market directory. There you will find listings for the nation’s top builders risk insurance programs, including one for eMaxx.
In addition to wholesale programs such as builders risk, eMaxx provides captive insurance solutions that all members take control of their destiny with coverages and achieve lower costs through risk technology platforms, proactive loss prevention, and safety programs, claims oversight, and litigation management.
Here are preferred targets for eMaxx’s builders risk insurance program: