Construction companies have been weakened by the recession, the economy is still in recovery and profits are harder to come by, making it more important than ever for risk managers to get the best builders' risk coverage available.

The challenge is finding the best price possible. This is attainable, especially when risk managers take steps to help them put in place a policy that will serve as the cornerstone of their risk-management program.

Taking these steps can make the difference between just adequate and ample coverage.

FIND THE RIGHT INSURANCE PARTNER

Having the right insurance carrier, agent or broker is a huge advantage. With their experience and access to risk construction engineers, these insurance professionals can offer invaluable knowledge and resources.

Getting the insurance team on board early in the process can also help control costs. It's much easier to accurately price a policy if the underwriter has a complete picture of the project. What's more, if a problem does arise down the road, the team will be intimately familiar with the project and its nuances.

For their part, risk managers must take the time to understand their project's specific needs and be aware of the factors that go into an underwriter's calculations. The goal is to create a true partnership, not a buyer-vendor relationship.

UNDERSTAND THE UNDERWRITER'S POV

The heart of any builder's risk policy is the assessment of risk. Looking at a project through the underwriter's eyes can make the assessment more transparent. Expect the underwriter to scrutinize the owner or contractor's reputation. A solid record will work strongly in their favor.

The particulars of the project and how potential issues will be addressed are also key components. Considerations include the type of work and the kind of construction; the “means and methods” used to accomplish the work; and measures to prevent collapse and other calamities.

Most importantly, the underwriting process will include a rigorous examination of quality control/quality assurance measures. This is a key area for proactive risk management.

While there isn't much risk managers can do about natural perils, such as hurricanes, seismic disturbances, wind and flood events, they should be aware of how such perils are handled in the policy.

DON'T UNDERESTIMATE THE COMPLETED VALUE

Determining a project's completed value—the full amount that would be required to rebuild in the event of a total loss—can be challenging. It's not uncommon to underestimate the completed value, leading to significant losses.

When assessing completed value, it's important to include direct and indirect costs such as materials, labor, workers' compensation, security services, overhead, profit, change orders and modifications, among other wide-ranging variables.

The more detailed and accurate the breakdown, the more likely it is that the insured will get the most appropriate coverage at consistent pricing and terms.

CONSIDER EXTRA PRECAUTIONS

Construction is complex and risk managers must expect the unexpected. If progress stops or is slower than projected, costs can mount quickly. Here, Delay in Completion coverage can be invaluable.

Other common extensions include expediting expenses, demolition and increased costs of construction, extra expenses, claim-preparation expenses, mold remediation, service interruption and fire brigade charges.

Risk managers for contractors can also secure additional protections, beyond what the owner has purchased. A Master Builders Risk policy, which is broad-based and designed to meet varying insurance requirements across multiple projects, is one option. Often, these policies also include an option that enables contractors to “buy down” high deductibles.

Contractors can also purchase wraparound coverage—also known as DIC/DOC or Difference In Conditions/Difference of Coverages—to protect against gaps in the owner's coverage, should the owner elect to use their property policy.

A SOLID INSURANCE FOUNDATION

Like construction itself, builder's risk insurance has a lot of moving parts. Putting the right builder's risk policy in place, however, can create a solid foundation and give risk managers the security of knowing the project will be completed—at a gain and not a loss.

John Tutera is construction property vice president at specialist insurer, Hiscox USA. Located in the New York office, he can be reached at john.tutera@hiscox.com, www.hiscoxusa.com.

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