Just as the construction industry’s multifamily sector grows post-recession – creating a spike in retailer brokers’ demand for builder’s risk insurance – massive fires at construction sites have created a market transition.
In the past year, there have been numerous disasters near Denver, San Francisco, Houston, Des Moines, Rockville and Anaheim. The fires spurred hundreds of millions of dollars in damages. They’ve also shown why it’s increasingly important to understand how underwriters approach risk, how superior submissions can help secure enhanced terms and conditions and how to differentiate your risk from others in the multifamily space.
Here are some key tips for retail brokers to review with their clients to secure the best pricing and coverage:
Consider different scenarios on the front end
Timeline. What values will be exposed and when? The consideration of secondary factors like value build-up and critical milestones help to paint an accurate picture of peak and reduced exposures during the project. This component is essential for projects in catastrophe-prone areas where modeling and risk cost is the central rating factor.
Site plan.Wood frame construction is often considered to be 100 percent Probable Maximum Loss (PML) for the fire exposure. Evaluating a site plan for building separations is key to demonstrating a lessor PML. The site plan showing elevation data is also necessary for projects in or around critical flood zones.
Budget and pro forma. Go line-by-line to avoid over- or under-insuring project values. For Soft Costs coverage, make sure that the expense allocation only applies to costs that would be re-incurred in the event of a delay. Regarding Loss of Income/Rents, make sure to allocate an accurate period for the loss of potential income. The period of indemnity should match the period calculation.
Decide what subjectivities should be deal breakers
It is proven that Protective Safeguard Warranties do not stand up in court, but they have crept into some builder’s risk policies due to recent losses. The warranty endorsements are designed to deny potential claims if set measures are not in place at the time of loss. A site protection plan for the project should be evaluated and agreed upon with the carriers, but there should not be any warranty associated with the builder’s risk policy.
Evaluate different considerations with the growing trend of urban infill apartments
These projects are typically podium style wood frame structures creating critical values between four walls. Firewall divisions should be identified and taken into consideration in order to determine a lessor fire PML. Contractor hot works protocols should be reviewed to ensure proper and adequate measures are taken into account when performing hot works. Review project manuals to determine how the insured plans to protect project sites in urban locations, where crime can be more prevalent.
Determine what coverage enhancements are available
When construction work slowed during the recession, many carriers were agreeable to broad terms and conditions that were traditionally unavailable. Today, even with the recent construction growth, those enhancements remain if brokers work aggressively with carriers.
Avoid conflicting policy language
Unlike property insurance, most builder’s risk carriers have their own non-standard, specialized forms. Manuscript policies are available including a participation subscription page to eliminate conflicting wording and non-concurrencies.
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