By Ross Heginbottom
The builders risk market remains a tale of two sides: the non-combustible marketplace remains competitive and steady, however, the wood frame market continues to present challenges.
Over the last few years, rates have increased exponentially to keep pace with losses. The inability to turn a profit has driven insurance carriers to exit the frame builders risk market altogether. Increased costs of construction have led to insurance limits greater than in the past and labor shortages have left timelines stretched. All of these conditions have created the perfect storm.
With the exodus of carriers, there are a limited number of insurance companies willing to entertain frame builders risk and those that will often struggle to insure the entire project, looking instead for a shared approach with multiple carriers.
For those handful of markets that will continue with the underwriting process, each submission is carefully underwritten, and additional underwriting materials (more than in the past) must be received in order to be moved up to the top of the pile. Markets are applying increased deductibles, along with strict security requirements that must be factored into the cost of the project.
As an owner or contractor begins to think about wood frame construction, careful consideration should be placed on how to best prepare for the questions and requirements that many insurance companies are pressing. Now more than ever, it’s important to engage your insurance broker early and often throughout the development to ensure the most optimal results.
Key concerns to address for frame builders risk
It’s no secret that a building under construction or renovation are particularly susceptible to loss. Buildings under construction have a greater potential for significant damage from fire, theft, and exposure to the elements. Underwriters are stressing the importance of how the job site procedures plan to address these concerns, and, in some cases, will not provide a quote without written plans and policies.
Obtaining your best results will require all parties to be able to provide plans for the following:
- Fire exposure and controls – Carriers will request a safety procedure for hot works, along with information on the smoking policy, how good housekeeping will be maintained throughout the jobsite, as well as proximity to water supply and fire departments. Written plans are well received.
- Water damage – Many water damage losses occur after the systems are installed and pressurized. It’s important to provide information on how you will verify that the connections are tight and no leaks will occur from pressure testing. For projects of a certain size, many carriers have mandated water flow monitoring systems to help mitigate losses.
- Contractor selection – The contractor selection process should consider the experience necessary for the project to be complete. Oftentimes, the builders risk carrier will require information surrounding any prior builders risk losses and how those issues have been addressed moving forward.
- Protective safeguards surrounding the jobsite – What sort of security will be in place on the jobsite? Many of the catastrophic fire losses sustained by insurance companies have been from arson, creating carriers to place a large emphasis on site security. At the very least, most carriers will require the project to install fencing and lighting and require materials to be secured after hours. For projects of a certain size or exposure, various other conditions may need to be met, such as an electronic surveillance system and/or a security guard service.
- Project timeline – Extensions to current builders risk policies are difficult, even for jobsites that have not experienced a loss. It’s important that all parties maintain an open line of communication on when the project can expect to be complete.
The frame builders risk market doesn’t show any signs of slowing down, and the challenges that exist today will remain to be the challenges for the foreseeable future. A proactive approach and consistent conversation between the owner, contractors, lenders, and insurance broker are key to navigating this hard market.