Builder’s Risk Insurance tends to be one of the most confusing policies to implement for most Contractors and Owners. As is the case with insurance on construction projects, the first consideration should be to carefully review the terms of the Construction Contract/ Agreement to be certain that the policy/coverage/terms purchased are in compliance.
The Named Insured(s) should include the Contractor and the Project Owner and/or anyone else having a financial interest in the structure. It is also important to decide which party will be listed as the First Named Insured since the First Named Insured has the rights and responsibilities associated with the policy.
Builders Risk can be written on two different types of policies. The One-Shot / Single Structure Policy is designed to cover one project with the coverage term usually one year. The Reporting Form Policy is most often used for residential contractors who construct similar multiple structures. The policy can be written on a Monthly Report or Annual Report basis. The construction period should be considered when deciding between the two reporting options as in some policies the Annual Reporting policy would be more cost effective for longer construction timeframes. For both types, the Contractor reports the Total Completed Values to the insurance carrier similar to a “pay-as-go” concept.
Determining the Projects completed value should include both Hard Costs and Soft Costs. The Hard Costs include items such as Concrete, Drywall, Electrical, HVAC, Landscaping, Roofing, etc. The Soft Costs which are often overlooked include items such as Architect Fees, Advertising Expense, License & Permit Fees, Insurance Premiums, Construction Loan Interest, Legal & Accounting Fees, and Real Estate and Property Tax Assessments.
Coverage Options to consider on the Residential side would include Green Build, Change Orders, Interests of Subcontractors, and Earthquake/Flood (where available). On the Commercial side, Business Income, Loss of Rents, Expediting Expenses, Extended Permission to Occupy, Hot Testing, Interest of Subcontractors, and Earthquake/Flood (where available).
About the Author: Karen joined Marsh & McLennan Agency, known locally as Insurance Associates Company in May, 2016. She began her career in Property and Casualty insurance during high school in her father’s insurance agency in Maine. She later moved to Florida where she worked for 20 years at an independent insurance agency specializing in Construction. Her duties included account management, risk management, client services, marketing, sales, and agency operations. Karen graduated from Florida State College at Jacksonville and earned her Certified Insurance Counselor Designation in 2003 and Certified Risk Manager designation in 2009. Karen’s strength is in understanding the unique insurance needs and issues of the construction industry and her ability to problem solve. In her spare time, Karen enjoys spending time with her children and grandchildren, camping, hiking, and going to the gym.