Those that specialize in the contractors and builders segment say a lot has changed in this class since 2007. The recession forced the insurance industry to be flexible and creative when it came to insuring this class, just as it forced contractors and builders to take on different and smaller jobs, as well as find more appropriate and cost-effective insurance programs.
As contractor and builder insureds shifted their focus to renovations and remodeling, green building or government projects, the insurance industry had to adjust policy forms and coverage options while still writing profitable business.
“The industry has traditionally taken a binary approach to insuring construction operations with either a builders risk or installation form,” says Alex McGinley from XL. “But with the change in the economy contractors are doing a lot of things they weren’t doing before… we looked at the construction forms and saw that no one product covered it all.”
Construction insurance specialists like XL have had to refocus policies and find more flexible coverage options for this class. One such product was the Builders Risk and Installation Coverage Solutions (BRICS) that the carrier launched last year.
The policy covers more types of property, including landscaping, sings and temporary structures; property at more locations; and business personal property that supports the buyer’s operation. The policy also covers different types of projects like new construction, renovation, rehabilitation, alteration or additions to installation, repairs, improvements, erection, rigging or millwright.
“This kind of product is nimble enough to insure any type of work a contractor or owner is performing,” says McGinley.
‘Pay as You Go’
Insureds have also been understandably concerned about costs. Not as much building meant not as much money coming in, and made paying for necessities like insurance very difficult.
Coventry Risk Specialty, a managing general agency that focuses on the construction industry, launched a “pay as you go” product for residential and commercial contractors with Prosight Specialty Insurance in June to address that issue. The new Builders Reporting Policy (BRP) provides additional cash flow for contractors and builders with a low deposit premium and the option to defer payment for completed operations coverage and structural defect warranty coverage until the time of sale. The coverage is also available for builder’s risk.
The program targets residential and light commercial general contractors and developers for designated projects and wrap-ups. Builders have the option to only pay the premise operation premium at policy inception and then upon the sale of the scheduled home or unit, the builder can use the funds from the sale to pay for the completed operations coverage, which is provided on a per structure basis.
Coventry Risk Specialty President Randy Roppelt says they launched the coverage to help insureds deal with the financial burden imposed upon them as a result of the recession.
“Cash flow has become paramount,” says Roppelt. “The bottom line to the builder is that his outflow of personal funds is minimized and the majority of the CGL policy cost will come from funds received by the builder from the sale.”
ProSight Specialty utilizes Lloyd’s paper for this program and distributes it exclusively through Coventry Risk.
Mary Hughes, niche president who oversees ProSight’s construction programs, says even though construction projects have started up again, contractors and builders are still watching the bottom line closely. “Contractors are always very aware of their cash flow needs, that piece is always there,” she said.
Flexible Payment Options
Other industry specialists agree that despite improvements, the construction segment isn’t out of the woods, and just as the insurance needs of this class have changed, so have its buying habits.
“We have seen an increase in request for flexible payment plans, or insureds asking for installments instead of paying the premium up front and we have been willing to work with them on that,” says Annemarie Elder, chief underwriting officer for XL’s Inland Marine division.
George Dale, president of Cove Programs in Los Angeles, says they have presidents of contracting companies involved in the insurance purchasing process — scrutinizing every coverage and consulting with insurance experts to squeeze out every penny — a rare occurrence before 2007.
“While the volume has increased, the buying habits of insureds — for homebuilding especially — are still as if it is the recession. Contractors are doing pretty well right now and have had a couple really good years, but they are still counting every penny,” he says.
That’s why a big aspect of Cove Programs’ product expansion last year included offering a flexible policy structure for smaller builders. It offers general liability and builder’s risk insurance on an annual, multiple year or project basis for single-family detached, attached housing and apartment projects. The form was designed specifically for residential operations including construction defect exposures. Dale says they experimented with different payment structures, but ultimately found that individualizing a program for specific accounts was a better option.
“We asked ‘how long will it take you build 100 homes and sell them?,’ looked at their projects in the pipeline and built insurance around their business plan, rather than trying to squeeze their business plan into a one or two year policy period,” he says. “That flexibility is needed in a dynamic economy.”
Dale says they formed Cove Programs back in 2011 to respond to the shift they saw occurring in the contractors market.
“We studied the market and we saw a lot of start-up companies that came from the ashes of the bad economy. All of these entrepreneurs had left the big [building] companies and needed programs that had lower minimum premiums than a traditional program,” he says. “Because of where we were in the economic cycle, a big homebuilder was going to do 100 units instead of 1,000. Traditional programs left people out.”
XL is also focused on other ways to help contractors get back on their feet while still protecting the insurer’s bottom line. Elder says many contractors have put equipment maintenance on the back burner to save money, so expensive equipment hasn’t been properly serviced for years and may need repairs. The carrier is looking to address this through coverage and onsite inspections.
“Maintenance is expensive and contractors have cut down on their maintenance budget. For some of the larger equipment loss control is going to be critical, so we are going out and looking at the condition equipment is in,” she says.
Cove is also focused on how to help prepare clients for the construction increase, says Dale. They most recently wrote a book for clients called “Ramping Up Without Messing Up” to help this segment focus on quality and prevent losses. Dale says contractors and builders are now looking for insurers that aren’t going to tell them how to run their business. “Everyone says the market is getting better, but the builders still need customized approaches,” he says.