Builder’s Risk insurance is by far not the most glamorous nor expensive or exciting line of coverage within the realm of construction. But when disaster strikes, it can often be one of the most important decisions to have made correctly, because the successful processing and payment of a claim can often make or break the relationship between the owner and the contractor.
And it seems to me that all too often the seminars offered are specifically about that – the handling of a builder’s risk claim, because someone, somewhere, has ended up in a contentious situation between an owner and a contractor and wants to educate everyone on the matter. This is not always a bad thing. It’s rarely ever a one-size-fits-all solution though, either.
So as an underwriter, I’ve tried for years to explain what we need and why we need it earlier in the process. Much earlier. Right when a submission is made in fact. This is not a terribly complex line of coverage at the end of the day, but the complexity tends to come in the establishment of clear communications of coverage, the setting of proper expectations for what can and should be paid in the event of a loss, and the continuance of that communication throughout the entire process till closeout.
So, let’s start with the submission. What makes a good submission?
Of course, we appreciate an application. An application should include:
- Name and address of the NAMED INSURED – the single party who controls the placement of the insurance
- Name and address contractor
- Name and address of the owner
- Location of the project (at least an intersection)
- Description of the project (think COPE – give us a few lines like “New construction of a 329,000 sf steel frame building with concrete block walls, TPO membrane roof, to be occupied as a logistics facility.”)
- Broker name and address
- Deductibles, limits/sublimits or extensions desired
With this much information, we can give you a pretty strong indication pricing, and it really won’t take all that long in fact. But, in order to get a thorough risk evaluation and refined terms, pricing, and so forth, we’ll need a little more.
Often you will see a request for additional documents, and this seems to be met with much eye-rolling and wonderment over what we do with these documents frankly. I’m asked often “Is this really necessary? Can’t you just quote “subject to”? And the answer is yes, I can. But then I’m quoting with certain assumptions and caveats to my information, and when the markets all come back quoting some range of terms and pricing, I’m sure the assumption is that some markets are just hungrier than others. That may or may not be true.
Let’s start with the list:
- Site Plan and/or elevation drawings
- Geotechnical report – summary section
- Schedule
- Budget breakdown
- Proforma for any loss of rents or earnings
- Water management or QA/QC program copy
Sounds like a lot of information. But right off the bat, if the broker responds that they cannot provide this information, it indicates to the underwriter that the opportunity in question may or may not really be viable. It may just be an indication needed for an RFP or a prospect meeting, and that’s completely fine. But if a project is truly going to bind in the next few days, then this information clearly must be available somewhere, and frankly it’s pretty necessary for an underwriter to do a good and proper evaluation.
I met with one of my long-time clients years ago. I came into their office to meet with their project managers and estimators to discuss this very thing. We explained what we need and why we need it. Once we had explained this, it helped create a much stronger relationship. Once the client understood what we needed, it became second nature to them in their submission to their broker, which enabled their broker to work with me as the underwriter more efficiently and with far less back and forth. Efficiency is key in everything we do these days.
Once the client understood what we needed, it became second nature to them in their submission to their broker, which enabled their broker to work with me as the underwriter more efficiently and with far less back and forth.
So here is the ‘what and why’:
Site plans
The site plans help us map out the exact location of the project. We quite literally overlay the site plans on satellite imagery of the site so that we can identify:
- Topography, nearby natural hazards (flood, river crossings, coastlines, fault lines, mudslide potential)
- Adjacent structures
- Fire protection (distance to hydrants, distance to responding fire departments)
- Site access concerns
- Site elevation and first finished floor elevation, plus any work you’re doing to build up the site in grading/site prep
Schedules
Schedules help us assess critical path points in the project, which helps us outline the detailed pricing and exposure points for the project more completely.
- During the first 30% of a project’s schedule, it is usually lower vulnerability work (sitework, utility work, structural skeleton);
- The middle 30-40% of a project’s schedule is typically where things get interesting because you start to have higher values and higher vulnerability work (mechanical and electrical rough-ins, enclosures/shells, roof completion);
- The final 30% is where the values are the highest of course, but the shell is complete and the building should be somewhat more protected, so the risk of loss shifts to a different set of perils.
Our ability to assess these phases of a project, and how they stack up against things like rainy spring seasons, fall named storm season, even heavy snow/ice exposures in winter, can greatly help how we view the potential success of your project and how you’re managing those exposures.
The understanding of float time, allowable days of delay for weather events and more, also greatly contributes to our assessment of your project.
Budget breakdowns
This is simple. We can see what you’re including or excluding in the values you want covered. In the event of a loss – this one item is critical to have on file at the very least, because it serves as a financial road map for our adjusters to know what expenses and costs, they should anticipate in their adjustment process.
Beyond that, remember those phases of construction above in the schedule? We actually do look at that within your project budget and look for anomalies or diversions from our usual assumptions. You may have a significant amount of outside hardscape/landscape work that we need to pay attention to, or a very high value of electrical work because of data handling requirements of your building. But at the end of the day – this simple document helps us really understand your financial exposures on the project.
Geotech report
In order to succeed, you need to have a good strong foundation. So, this is exactly what we are looking for in a Geotech report – what kind of foundation is planned, what were the existing site conditions that need to be anticipated, how are they being addressed…? And keep in mind, the Geotech report may have been completed initially quite a bit earlier than the rest of the project details were pinned down. It is not uncommon these days to see a Geotech that is a few years old, discussing a project that was planned years ago and then shelved for a while due to the economy. Or to see an owner change plans and increase the size or height of a building. Or to see the load requirements on a medical building change because new equipment will be brought in that requires a different load capacity than before.
When we read the Geotech, we’re looking at soil conditions, foundation recommendations, limitations of the site, and whether the Geotech engineering firm’s recommendations are being met by the planned project submitted.
Proformas for loss of earnings/rents and breakdowns of soft costs
Delay in Completion/Startup coverage easily accounts for half of the seminars that I see presented around our industry. There is very rarely a “simple” delay claim. Unfortunately, what commonly seems to be the problem is that the expectations of the insured and owner don’t match the coverage form or the values declared for coverage.
When we receive a request for these coverages, we will ask for a breakdown of soft costs. Soft costs to be included in this category are the time dependent portion of expenses related to construction of the project which may be extended in the event of a delay in completion date of the project. This includes:
- Financing costs
- Legal, accounting, professional, consulting, or engineering fees or retainers
- 尤物视频premiums
- The cost to renegotiate leases
- Real estate taxes
- And, potentially other types of expenses that can be accepted by the underwriter.
These expenses are typically borne by (and thus payable to) the owner of the project, not the contractor. Therefore, it’s critically important that the owner and contractor both understand and agree what values are to be covered, and what the terms and conditions of that coverage may be. It’s likewise critically important for the underwriter, engineers and claims adjusters to have a sound understanding of these exposures and the terms set for them. One of the best ways to accomplish this is to actually ask the underwriter to draft the Delay endorsement so that the contractor and owner can document that they’ve reviewed it together and agreed to it.
The other tricky exposure within the Delay umbrella is loss of profits, gross earnings, revenues, or rents. Owners are sometimes reluctant to disclose this information, but if they wish to have proper coverage for the exposure, the information needs to be disclosed in some fashion to the underwriters. It allows us to be best prepared to respond in the event of a claim.
Water intrusion management plan or quality control/quality assurance program
Water damage has been the leading cause of loss for this industry (excluding natural perils) for decades. It affects all lines of insurance on a construction project potentially. And it is an insidious type of loss that often starts with a small event that leads to a very large potential financial loss. It can also be a tough exposure to manage in a dynamic environment like a construction project.
We are asking to see this document in the very early preconstruction stages because we believe it is critically important that all parties – owner, contractor, subcontractors, other vendors to the project, insurers – be able to understand the roles we all share in responding to water getting where it shouldn’t be on a project. Managing the exposure well means that the contractor should be able to demonstrate to the owner their awareness of the exposure, their detailed plans for response to the exposure should an event occur, and to provide documentation of all of this after an event takes place and is resolved. Managing the exposure well means that the owner and any of their consultants understands the exposure and supports the contractor in their diligence as well, including allowing adequate time to respond to water events just as any other type of potential loss scenario. And when an event occurs, we all need to be clear about what, who, why, when, where and how of things to allow for proper claim adjustment if necessary.
If you haven’t reviewed your corporate plan recently, please consult with our engineers who can assist you with sharing of best practices and new technology that may help. If you have a great corporate plan, please make sure clients have a site-specific plan that evolves along with their project, and that they are communicating well to all parties. The best laid plans still sometimes end in disaster if all parties don’t clearly understand them.
So, there it is. The wish list of your Builders Risk underwriters for every submission to be fully considered. The more you can present from this list, the better built your builders risk submission will be, and the better we can build a complete solution for you.
