The construction industry is a complex ecosystem with multiple stakeholders, each facing unique challenges, especially when it comes to insurance needs. After spending years working closely with different actors in the field, we have obtained information that could benefit anyone who navigates this complex web. In this blog post, we aim to shed some light on the different needs, complexities and strategies related to construction insurance and the risk of construction companies.
Builders’ Risk Insurance in Housing Construction
Builder’s risk insurance is crucial for home construction projects, serving as a safety net in the event of unexpected events such as fire or natural disasters. Specific risks often vary across geographic locations; earthquakes are a primary concern in California, while hurricanes are more relevant in coastal Texas.
What sets PCF Construction apart is our attention to the unique risks of different regions. Many insurance brokers may not specialize in construction, leading to potential coverage gaps. For example, some may offer per-project limits, without important aspects like soft costs, model home coverage, or home and inventory coverage. Simply having a policy is not enough; it is essential to address these specific gaps, which our specialized program aims to do.
Another factor to consider is the role of financial institutions or lenders, who often require builder’s risk insurance for construction loans. This requirement applies whether the project is a luxury custom home or a larger living area. Therefore, understanding the intricate details of builder’s risk insurance is not just a checklist item, but a necessity, and our program specializes in this area.
Market adjustments for carrier capacity and disparity at project start
The insurance market is adapting to the challenges between carrier capacity and large-scale construction projects. For residential home builders, the risk is typically spread across multiple homes, allowing operators to limit the limit per home. This “roller builder risk” approach works well for larger residential companies.
However, it’s a different story for larger projects, especially those worth more than $25-30 million. Coverage options are limited and costs have skyrocketed. These projects often require layered insurance programs involving multiple carriers, or rely on surplus lines from a single carrier. Preliminary estimates of insurance costs can sometimes be two to three times higher than originally budgeted. These high costs are influenced not only by the risk of major damage, but also by associated costs such as lost income and loan interest payments. As a result, insurance companies are increasingly turning to reinsurance, which in turn is driving up costs in several domains of insurance, including auto insurance.
Adding to the complexity, construction costs have doubled over the past five years, often exceeding insurance limits for larger projects. This has led to greater reliance on surplus lines, indicating a turbulent market outlook.
Regional complexities in construction insurance
The construction insurance landscape is being shaped by a number of factors, including regional risks. A major concern is the coverage limitations found in builders risk insurance. For example, insurance companies are increasingly restricting coverage for water intrusion, either through exclusion clauses or higher deductibles. Additionally, Florida carriers often limit or exclude wind and hail coverage, despite the state’s high level of construction activity and associated risks. Meanwhile, in California, wildfire coverage is often excluded given the state’s vulnerability to such disasters.
However, these coverage restrictions are not the only regional challenges affecting the sector. Geographically specific risks, such as hurricanes in Florida or wildfires in California, significantly influence underwriting decisions. Advanced systems are deployed to assess these risks, down to specific addresses, determining not only rates but also what is included or excluded from coverage. The regulatory environment adds another layer of complexity. For example, rate filing delays in California have forced many insurance companies out of the state.
Recommended resources for accurate construction insurance information
Choosing the right broker is crucial when looking for accurate and personalized construction insurance information. The broker’s competence often trumps the insurance company’s reputation. While competition to get the best deal is encouraged, specialization in the construction industry is vital to navigating complex risks and market trends. Industry-specific associations such as the Associated General Contractors of America (AGC) also provide valuable information. Therefore, when choosing an agent, it is essential to find someone with a deep understanding of construction risks and current market conditions, especially in difficult times.
For example, at PCF Construction we have a division that started out in the warranty business, but have since specialized in the construction industry. His approach is geared towards understanding the complexities of construction risks and fluctuations in market trends. This type of specialization can provide a significant advantage in navigating the complexities and challenges of construction insurance. So, when choosing an agent, look for someone who not only has general insurance knowledge, but also has a deep understanding of the risks and trends specific to the construction industry.
Choose the right insurance partner
The complexities of construction insurance require more than a general understanding of policies – it requires a specialized approach that takes into account the unique challenges and risks specific to this industry.
Our focus on specific regional risks and our ability to tailor insurance solutions to the unique needs of each project set us apart. Whether tackling the complexities of large-scale projects, understanding the implications of regional hazards like earthquakes in California or hurricanes in Texas, or navigating the changing landscape of insurance regulations, PCF Construction provides invaluable service .
By working with us, clients not only ensure that their projects are properly protected, but also benefit from the peace of mind that comes with knowing they are working with experts who can save them time, stress and money. With PCF Construction, you’re not just securing your project, you’re securing it with the nuanced understanding and expert attention it deserves.
